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Tracking Down the Business Cycle: A Dynamic Factor Model For Germany 1820-1913

  • Samad Sarferaz
  • Martin Uebele

We use a Bayesian dynamic factor model to measure Germany’s pre World War I economic activity. The procedure makes better use of existing time series data than historical national accounting. To investigate industrialization we propose to look at comovement between sectors. We find that Germany’s industrial sector developed earlier than stated in the literature, since after the 1860s agricultural time series do not comove with the business cycle anymore. Also, the bulk of comovement between 1820 and 1913 can be traced back to five out of 18 series representing industrial production, investment and demand for industrial inputs. Our factor is impressingly confirmed by a stock price index, leading the factor by 1-2 years. We also find evidence for early market integration in the 1820s and 1830s. Our business cycle dating aims to resolve the debate on German business cycle history. Given the often unsatisfactory quality of national accounting data for the 19th century we show the advantage of dynamic factor models in making efficient use of rare historical time series.

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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2007-039.

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Length: 36 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2007-039
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