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A Dynamic Factor Analysis of Business Cycle on Firm-Level Data

Lucia Alessi (), Matteo Barigozzi and Marco Capasso

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: We use the Generalized Dynamic Factor Model proposed by Forni et al. [2000] in order to study the dynamics of the rate of growth of output and investment. By using quarterly firm level data relative to hundreds of US firms for 20 years, we investigate the number and the features of the underlying forces leading economic growth: evidence suggests the main shock to be the same across sectors and for the economy as a whole, thus more likely a demand shock than a technology shock. Moreover, we disentangle the component of industrial dynamics which is due to economy-wide factors, the common component, from the component which relates to sectoral or firm-specific phenomena, the idiosyncratic component. We assess the relative importance of these two components at different frequencies and compare common components across sectors. Finally, we investigate the comovements of the common component of output and investment series both at firm level and at sectoral level.

Keywords: Dynamic Factor Analysis; Business Cycle; Comovements (search for similar items in EconPapers)
Date: 2006-10-05
New Economics Papers: this item is included in nep-mac and nep-rmg
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2006/27

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