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Identification of Macroeconomic Factors in Large Panels

Romain Houssa (), Lasse Bork and Hans Dewachter

No 1010, Working Papers from University of Namur, Department of Economics

Abstract: This paper presents a dynamic factor model where the extracted factors and shocks are given a clear economic interpretation. The economic interpretation of the factors is obtained by means of a set of over-identifying loading restrictions, while the structural shocks are estimated following standard practices in the SVAR literature. Estimators based on the EM algorithm are developed. We apply this framework to a large panel of US monthly macroeconomic series. In particular, we identify five macroeconomic factors and discuss the economic impact of monetary policy shocks. The results are theoretically more plausible than those implied by standard SVAR models and indicate a significant role for monetary policy shocks in macroeconomic dynamics.

Keywords: Monetary policy; Business Cycles; Factor Models; EM Algorithm. (search for similar items in EconPapers)
JEL-codes: E3 E43 C51 E52 C33 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2008-05
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http://www.fundp.ac.be/eco/economie/recherche/wpseries/wp/1010.pdf First version, 2008 (application/pdf)

Related works:
Working Paper: Identification of Macroeconomic Factors in Large Panels (2009) Downloads
Working Paper: Identification of macroeconomic factors in large panels (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:nam:wpaper:1010

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