An endogenously clustered factor approach to international business cycles
Factor models have become useful tools for studying international business cycles. Block factor models [e.g., Kose, Otrok, and Whiteman (2003)] can be especially useful as the zero restrictions on the loadings of some factors may provide some economic interpretation of the factors. These models, however, require the econometrician to predefine the blocks, leading to potential misspecification. In Monte Carlo experiments, we show that even small misspecifica- tion can lead to substantial declines in t. We propose an alternative model in which the blocks are chosen endogenously. The model is estimated in a Bayesian framework using a hierarchi- cal prior, which allows us to incorporate series-level covariates that may influence and explain how the series are grouped. Using similar international business cycle data as Kose, Otrok, and Whiteman, we find our country clusters differ in important ways from those identified by geography alone. In particular, we find that similarities in institutions (e.g., legal systems, language diversity) may be just as important as physical proximity for analyzing business cycle comovements.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Email: |
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.:
- Natalia Ponomareva & Hajime Katayama, 2010. "Does the version of the Penn World Tables matter? An analysis of the relationship between growth and volatility," Canadian Journal of Economics, Canadian Economics Association, vol. 43(1), pages 152-179, February.
- Baxter, Marianne & Kouparitsas, Michael A., 2005.
"Determinants of business cycle comovement: a robust analysis,"
Journal of Monetary Economics,
Elsevier, vol. 52(1), pages 113-157, January.
- Marianne Baxter & Michael A. Kouparitsas, 2004. "Determinants of business cycle comovement: a robust analysis," Working Paper Series WP-04-14, Federal Reserve Bank of Chicago.
- Marianne Baxter & Michael A. Kouparitsas, 2004. "Determinants of Business Cycle Comovement: A Robust Analysis," NBER Working Papers 10725, National Bureau of Economic Research, Inc.
- Engle, Robert F & Kozicki, Sharon, 1993.
"Testing for Common Features,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 11(4), pages 369-80, October.
- Boivin, Jean & Ng, Serena, 2006.
"Are more data always better for factor analysis?,"
Journal of Econometrics,
Elsevier, vol. 132(1), pages 169-194, May.
- M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
- Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-95, October.
- Fruhwirth-Schnatter, Sylvia & Kaufmann, Sylvia, 2008.
"Model-Based Clustering of Multiple Time Series,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 26, pages 78-89, January.
- Todd E. Clark & Eric Van Wincoop, 1999.
"Borders and business cycles,"
Research Working Paper
99-07, Federal Reserve Bank of Kansas City.
- James D. Hamilton & Michael T. Owyang, 2011.
"The Propagation of Regional Recessions,"
NBER Working Papers
16657, National Bureau of Economic Research, Inc.
- Chib, Siddhartha, 1993. "Bayes regression with autoregressive errors : A Gibbs sampling approach," Journal of Econometrics, Elsevier, vol. 58(3), pages 275-294, August.
- Ayhan Kose, M. & Otrok, Christopher & Whiteman, Charles H., 2008.
"Understanding the evolution of world business cycles,"
Journal of International Economics,
Elsevier, vol. 75(1), pages 110-130, May.
- Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2005. "Understanding the Evolution of World Business Cycles," IMF Working Papers 05/211, International Monetary Fund.
- Chib, Siddhartha & Greenberg, Edward, 1994. "Bayes inference in regression models with ARMA (p, q) errors," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 183-206.
- 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.
- 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.
- Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
- Emanuel Moench & Serena Ng & Simon M. Potter, 2009.
"Dynamic hierarchical factor models,"
412, Federal Reserve Bank of New York.
- Sylvia Kaufmann, 2010.
"Dating and forecasting turning points by Bayesian clustering with dynamic structure: a suggestion with an application to Austrian data,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 25(2), pages 309-344.
- Sylvia Kaufmann, 2008. "Dating and forecasting turning points by Bayesian clustering with dynamic structure: A suggestion with an application to Austrian data," Working Papers 144, Oesterreichische Nationalbank (Austrian Central Bank).
- Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, March.
- Chib S. & Jeliazkov I., 2001. "Marginal Likelihood From the Metropolis-Hastings Output," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 270-281, March.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2012-014. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao)
If references are entirely missing, you can add them using this form.