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Identifying sectoral shocks and their role in business cycles

Author

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  • De Graeve, Ferre
  • Schneider, Jan David

Abstract

US business cycles can be empirically characterized as a time-varying mix of different sectoral shocks. Sectoral shocks are distinct from aggregate shocks and better capture business cycle fluctuations. A typical recession (or boom) is interpreted as the combination of a few sectoral shocks, which encompass more diverse origins than the typical narrative prevalent for that recession. Sectoral shocks have aggregate consequences through strong input–output network effects. Identification is based on network-implied heterogeneity restrictions in a FAVAR framework and far less dependent on specific DSGE calibrations compared to previous work.

Suggested Citation

  • De Graeve, Ferre & Schneider, Jan David, 2023. "Identifying sectoral shocks and their role in business cycles," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 124-141.
    • Handle: RePEc:eee:moneco:v:140:y:2023:i:c:p:124-141
    DOI: 10.1016/j.jmoneco.2023.08.005
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    More about this item

    Keywords

    SVAR; Sectoral shocks; Production networks; Business cycles;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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