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The Role of Search Frictions and Bargaining for Inflation Dynamics

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Massimiliano Marcellino
George Kapetanios

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Abstract

The estimation of dynamic factor models for large sets of variables has attracted considerable attention recently, due to the increased availability of large datasets. In this paper we propose a new parametric methodology for estimating factors from large datasets based on state space models and discuss its theoretical properties. In particular, we show that it is possible to estimate consistently the factor space. We alsodevelop a consistent information criterion for the determination of the number of factors to be included in the model. Finally, we conduct a set of simulation experiments that show that our approach compares well with existing alternatives.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 305.

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Date of creation: 2006
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Handle: RePEc:igi:igierp:305

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2003. "The Generalized Dynamic Factor Model. One-Sided Estimation and Forecasting," LEM Papers Series 2003/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
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  2. Forni, Mario & Reichlin, Lucrezia, 1997. "National Policies and Local Economies: Europe and the United States," CEPR Discussion Papers 1632, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Forni, Mario & Reichlin, Lucrezia, 1995. "Let's Get Real: A Dynamic Factor Analytical Approach to Disaggregated Business Cycle," CEPR Discussion Papers 1244, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Forni, Mario & Reichlin, Lucrezia, 1996. "Dynamic Common Factors in Large Cross-Sections," Empirical Economics, Springer, vol. 21(1), pages 27-42.
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  5. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2000. "Reference Cycles: The NBER Methodology Revisited," CEPR Discussion Papers 2400, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. George Kapetanios & Massimiliano Marcellino, 2003. "A Comparison of Estimation Methods for Dynamic Factor Models of Large Dimensions," Working Papers 489, Queen Mary, University of London, Department of Economics. [Downloadable!]
  7. Carlo Ambrogio Favero & Massimilano Marcellino & Francesca Neglia, . "Principal components at work: The empirical analysis of monetary policy with large datasets," Working Papers 223, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  8. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc. [Downloadable!]
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  9. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
  10. Danny Quah & Thomas J. Sargent, 1992. "A dynamic index model for large cross sections," Discussion Paper / Institute for Empirical Macroeconomics 77, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  11. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. James H. Stock & Mark W. Watson, 1988. "A Probability Model of The Coincident Economic Indicators," NBER Working Papers 2772, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Connor, Gregory & Korajczyk, Robert A, 1993. " A Test for the Number of Factors in an Approximate Factor Model," Journal of Finance, American Finance Association, vol. 48(4), pages 1263-91, September. [Downloadable!] (restricted)
  14. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Burkhard Heer & Alfred Maussner, . "Inflation and Output Dynamics in a Model with Labor Market Search and Capital Accumulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics. [Downloadable!] (restricted)
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  2. Abo-Zaid, Salem, 2009. "Optimal Monetary Policy and Downward Nominal Wage Rigidity in Frictional Labor Markets
    [Optimal Monetary Policy and Downward Nominal Wage Rigidity in Frictional Labor Markets]    ," MPRA Paper 17489, University Library of Munich, Germany. [Downloadable!]
  3. Christoffel, Kai & Costain, James & de Walque, Gregory & Kuester, Keith & Linzert, Tobias & Millard, Stephen & Pierrard, Olivier, 2009. "Inflation dynamics with labour market matching: assessing alternative specifications," Bank of England working papers 375, Bank of England. [Downloadable!]
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