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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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Keywords: Dynamic Factor Analysis; Business Cycle; Comovements;

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References

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  1. Ellen R. Rissman, 1997. "Measuring labor market turbulence," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue May, pages 2-14.
  2. Forni, Mario & Reichlin, Lucrezia, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(3), pages 453-73, July.
  3. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers 98-12, Center for Economic Studies, U.S. Census Bureau.
  4. George Kapetanios & Massimiliano Marcellino, 2003. "A Comparison of Estimation Methods for Dynamic Factor Models of Large Dimensions," Working Papers, Queen Mary, University of London, School of Economics and Finance 489, Queen Mary, University of London, School of Economics and Finance.
  5. Marco Lippi & Lucrezia Reichlin, 1994. "VAR analysis, non-fundamental representations, Blashke matrices," ULB Institutional Repository 2013/10151, ULB -- Universite Libre de Bruxelles.
  6. Mario Forni & Domenico Giannone & Marco Lippi & Lucrezia Reichlin, 2008. "Opening the Black Box: Structural Factor Models with Large Cross-Sections," Working Papers ECARES, ULB -- Universite Libre de Bruxelles 2008_036, ULB -- Universite Libre de Bruxelles.
  7. Jean Boivin & Serena Ng, 2005. "Understanding and Comparing Factor-Based Forecasts," NBER Working Papers 11285, National Bureau of Economic Research, Inc.
  8. 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.
  9. Gary Chamberlain & Michael Rothschild, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," NBER Working Papers 0996, National Bureau of Economic Research, Inc.
  10. Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers, Federal Reserve Bank of Minneapolis 55, Federal Reserve Bank of Minneapolis.
  11. Abraham, Katharine G. & Katz, Lawrence F., 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Scholarly Articles 3442781, Harvard University Department of Economics.
  12. 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.
  13. Cooper, Russell & Haltiwanger, John, 1990. "Inventories and the Propagation of Sectoral Shocks," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 170-90, March.
  14. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
  15. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(1), pages 39-69, February.
  16. 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.
  17. N. Gregory Mankiw, 1989. "Real Business Cycles: A New Keynesian Perspective," NBER Working Papers 2882, National Bureau of Economic Research, Inc.
  18. Loungani, Prakash & Rogerson, Richard, 1989. "Cyclical fluctuations and sectoral reallocation : Evidence from the PSID," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(2), pages 259-273, March.
  19. Reichlin, Lucrezia, 2002. "Factor Models in Large Cross-Sections of Time Series," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3285, C.E.P.R. Discussion Papers.
  20. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(4), pages 777-93, August.
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Cited by:
  1. Antonio Palestrini, 2008. "Common Components in Firms' Growth and the Sectors Scaling Puzzle," Economics Bulletin, AccessEcon, vol. 12(35), pages 1-8.
  2. repec:ebl:ecbull:v:12:y:2008:i:35:p:1-8 is not listed on IDEAS
  3. Gallegati, M. & Palestrini, A., 2010. "The complex behavior of firms' size dynamics," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 75(1), pages 69-76, July.

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