TY - JOUR
T1 - Sectoral versus aggregate shocks
T2 - A structural factor analysis of industrial production
AU - Foerster, Andrew T.
AU - Sarte, Pierre Daniel G.
AU - Watson, Mark W.
PY - 2011/2
Y1 - 2011/2
N2 - Using factor methods, we decompose industrial production (IP) into components arising from aggregate and sector-specific shocks. An approximate factor model finds that nearly all of IP variability is associated with common factors. We then use a multisector growth model to adjust for the effects of input-output linkages in the factor analysis. Thus, a structural factor analysis indicates that the Great Moderation was characterized by a fall in the importance of aggregate shocks while the volatility of sectoral shocks was essentially unchanged. Consequently, the role of idiosyncratic shocks increased considerably after the mid-1980s, explaining half of the quarterly variation in IP.
AB - Using factor methods, we decompose industrial production (IP) into components arising from aggregate and sector-specific shocks. An approximate factor model finds that nearly all of IP variability is associated with common factors. We then use a multisector growth model to adjust for the effects of input-output linkages in the factor analysis. Thus, a structural factor analysis indicates that the Great Moderation was characterized by a fall in the importance of aggregate shocks while the volatility of sectoral shocks was essentially unchanged. Consequently, the role of idiosyncratic shocks increased considerably after the mid-1980s, explaining half of the quarterly variation in IP.
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U2 - 10.1086/659311
DO - 10.1086/659311
M3 - Article
AN - SCOPUS:79953699938
SN - 0022-3808
VL - 119
SP - 1
EP - 38
JO - Journal of Political Economy
JF - Journal of Political Economy
IS - 1
ER -