Analyzing business and financial cycles using multi-level factor models

Jörg Breitung () and Sandra Eickmeier

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper compares alternative estimation procedures for multi-level factor models which imply blocks of zero restrictions on the associated matrix of factor loadings. We suggest a sequential least squares algorithm for minimizing the total sum of squared residuals and a two-step approach based on canonical correlations that are much simpler and faster than Bayesian approaches previously employed in the literature. Monte Carlo simulations suggest that the estimators perform well in typical sample sizes encountered in the factor analysis of macroeconomic data sets. We apply the methodologies to study international co-movements of business and financial cycles as well as asymmetries over the business cycle in the US.

Keywords: Factor models; canonical correlations; international business cycles; financial cycles; business cycle asymmetries (search for similar items in EconPapers)
JEL-codes: C38 C55 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2014-05
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (23)

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Working Paper: Analyzing business and financial cycles using multi-level factor models (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2014-43

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