Frequency-band estimation of the number of factors detecting the main business cycle shocks

Marco Avarucci (), Maddalena Cavicchioli and Mario Forni
Authors registered in the RePEc Author Service: Pantelis Kazakis

Working Papers from Business School - Economics, University of Glasgow

Abstract: We introduce consistent estimators for the number of shocks driving large-dimensional dynamic factor models. Our estimators are functions of the eigenvalues of the spectral density matrix of the observables and can be applied to single frequencies as well as to specific frequency bands, making them suitable for disentangling shocks affecting dynamic macroeconomic models with a factor model representation. Their small-sample performance in simulations is excellent, even in estimating the number of shocks that drive medium-sized DSGE models. We apply our estimators to the FRED-QD dataset, finding that the U.S. macroeconomyis driven by two shocks: an inflationary demand shock and a deflationary supply shock

Keywords: Frequency Bands; Dynamic Eigenvalue Ratio; Generalized Dynamic Factor Models; Business Cycle; Permanent Component; DSGE. (search for similar items in EconPapers)
JEL-codes: C01 C55 E00 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-acc, nep-lma and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2022_13

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