Tracking down the business cycle: A dynamic factor model for Germany 1820-1913

Samad Sarferaz and Martin Uebele

No 2007-039, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: 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.

Keywords: Business Cycle Chronology; Imperial Germany; Dynamic Factor Models; Industrialization (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 N13 (search for similar items in EconPapers)
Date: 2007
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Journal Article: Tracking down the business cycle: A dynamic factor model for Germany 1820-1913 (2009)
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