2021/22 | LEM Working Paper Series | ||||||||||||||||
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Factoring in the micro: a transaction-level dynamic factor approach to the decomposition of export volatility |
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Matteo Barigozzi, Angelo Cuzzola, Marco Grazzi and Daniele Moschella |
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Keywords | |||||||||||||||||
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Factor models; trade volatility; diversification.
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JEL Classifications | |||||||||||||||||
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C38, L25, F14
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Abstract | |||||||||||||||||
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This paper analyzes the sources of export volatility estimating a dynamic
factor model on transaction-level data. Using an exhaustive dataset covering all
French export transactions over the period 1993-2017, we reconstruct the latent
factor space associated to global and destination-specific macroeconomic cycles
by means of a modified expectation maximization algorithm to accommodate
both the sparsity and the high dimensionality of the micro time series. Thus
while paving the way for a novel application of dynamic factor models to
microeconomic analysis, we provide a decomposition of the volatility of aggregate
export and firms growth rates, highlighting structural spatial patterns and drawing
attention to the role of geographical diversification for the mitigation of risks
related to firms’ export activities.
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