2006/27 | LEM Working Paper Series | |
A Dynamic Factor Analysis of Business Cycle on Firm-Level Data | ||
Lucia Alessi, Matteo Barigozzi, Marco Capasso |
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Keywords | ||
Dynamic Factor Analysis, Business Cycle, Comovements.
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JEL Classifications | ||
C51, E32, O30.
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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.
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