IDEAS home Printed from https://ideas.repec.org/p/boc/bocoec/1106.html
   My bibliography  Save this paper

A Nonlinear Dynamic Factor Model for Financial and Macroeconomic Data

Author

Listed:
  • Pablo Guerron-Quintana

    (Boston College
    Boston College)

  • Alexey Khazanov

    (Hebrew University of Jerusalem)

  • Molin Zhong

    (Board of Governors of the Federal Reserve System)

Abstract

We propose a nonlinear dynamic factor model to examine the impact of external shocks and internal forces on macroeconomic and financial data fluctuations. This model permits nonlinear dynamics, enables asymmetric, state-dependent, and size- dependent responses to shocks, and generates time-varying volatility and asymmetric tail risk behavior. We find evidence of nonlinear dynamics in a U.S. application on measuring the credit cycle. The nonlinear factor stimulates credit growth during booms but hinders recovery after crises, with shocks having longer, amplified effects during credit crunches. An extended model that separates first- and second-order effects of the factor reveals that credit cycles exhibit state dependence in which shocks that spur growth during modest credit conditions trigger sharp busts during excessive expansions,thereby predicting how credit conditions can flip from boom to crisis.

Suggested Citation

  • Pablo Guerron-Quintana & Alexey Khazanov & Molin Zhong, 2026. "A Nonlinear Dynamic Factor Model for Financial and Macroeconomic Data," Boston College Working Papers in Economics 1106, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:1106
    as

    Download full text from publisher

    File URL: http://fmwww.bc.edu/EC-P/wp1106.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boc:bocoec:1106. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F Baum (email available below). General contact details of provider: https://edirc.repec.org/data/debocus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.