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A Dynamic Factor Analysis of Business Cycle on Firm-Level Data

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Author Info

  • Lucia Alessi
  • Matteo Barigozzi
  • Marco Capasso

Abstract

We use the Generalized Dynamic Factor Model proposed by Forni et al. [2000] in order to study the dynamics of the rate of growth of output and investment. By using quarterly firm level data relative to hundreds of US firms for 20 years, we investigate the number and the features of the underlying forces leading economic growth: evidence suggests the main shock to be the same across sectors and for the economy as a whole, thus more likely a demand shock than a technology shock. Moreover, we disentangle the component of industrial dynamics which is due to economy-wide factors, the common component, from the component which relates to sectoral or firm-specific phenomena, the idiosyncratic component. We assess the relative importance of these two components at different frequencies and compare common components across sectors. Finally, we investigate the comovements of the common component of output and investment series both at firm level and at sectoral level.

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Bibliographic Info

Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2006/27.

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Date of creation: 05 Oct 2006
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Handle: RePEc:ssa:lemwps:2006/27

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Related research

Keywords: Dynamic Factor Analysis; Business Cycle; Comovements;

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References

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  1. N. Gregory Mankiw, 1989. "Real Business Cycles: A New Keynesian Perspective," NBER Working Papers 2882, National Bureau of Economic Research, Inc.
  2. Bartelsman, Eric & Haltiwanger, John & Scarpetta1, Stefano, 2004. "Microeconomic evidence of creative destruction in industrial and developing countries," Policy Research Working Paper Series 3464, The World Bank.
  3. Chamberlain, Gary & Rothschild, Michael, 1983. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Econometrica, Econometric Society, vol. 51(5), pages 1281-304, September.
  4. Forni, Mario & Giannone, Domenico & Lippi, Marco & Reichlin, Lucrezia, 2007. "Opening the black box: structural factor models with large cross-sections," Working Paper Series 0712, European Central Bank.
  5. Boivin, Jean & Ng, Serena, 2005. "Understanding and Comparing Factor-Based Forecasts," MPRA Paper 836, University Library of Munich, Germany.
  6. 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.
  7. Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers 55, Federal Reserve Bank of Minneapolis.
  8. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  9. Forni, Mario & Reichlin, Lucrezia, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 453-73, July.
  10. Lippi, Marco & Reichlin, Lucrezia, 1994. "VAR analysis, nonfundamental representations, blaschke matrices," Journal of Econometrics, Elsevier, vol. 63(1), pages 307-325, July.
  11. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  12. 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, School of Economics and Finance.
  13. John C. Haltiwanger, 1997. "Measuring and analyzing aggregate fluctuations: the importance of building from microeconomic evidence," Review, Federal Reserve Bank of St. Louis, issue May, pages 55-78.
  14. Cooper, Russell & Haltiwanger, John, 1990. "Inventories and the Propagation of Sectoral Shocks," American Economic Review, American Economic Association, vol. 80(1), pages 170-90, March.
  15. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
  16. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-22, June.
  17. Reichlin, Lucrezia, 2002. "Factor Models in Large Cross-Sections of Time Series," CEPR Discussion Papers 3285, C.E.P.R. Discussion Papers.
  18. Ellen R. Rissman, 1997. "Measuring labor market turbulence," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 2-14.
  19. Loungani, Prakash & Rogerson, Richard, 1989. "Cyclical fluctuations and sectoral reallocation : Evidence from the PSID," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 259-273, March.
  20. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
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Citations

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Cited by:
  1. Gallegati, M. & Palestrini, A., 2010. "The complex behavior of firms' size dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 75(1), pages 69-76, July.
  2. repec:ebl:ecbull:v:12:y:2008:i:35:p:1-8 is not listed on IDEAS
  3. Antonio Palestrini, 2008. "Common Components in Firms' Growth and the Sectors Scaling Puzzle," Economics Bulletin, AccessEcon, vol. 12(35), pages 1-8.

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