Real Sectoral Spillovers: A Dynamic Factor Analysis of the Great Recession

Author/Editor:

Nan Li ; Vance Martin

Publication Date:

May 9, 2018

Electronic Access:

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Summary:

This paper studies changes in the transmission of common versus sectoral idiosyncratic shocks across different U.S. nonfarm business sectors during the Great Recession, and evaluates the cross-sectoral spillovers. Shocks are identified by dynamic factor methods. We find that the Great Recession is largely a time of heightened impact of common shocks— which accounts for 3/4 of aggregate volatility—and large spillovers of negative financerelated shocks. Moreover, in contrast with the earlier literature that failed to find a significant role of sectoral shocks (propagated through the input-output linkages across sectors) in driving variability in aggregate industry output, this study allows spillovers of shocks to operate through other mechanisms intertemporally. We find that prior to the recession the majority of aggregate fluctuations is explained by sector-specific shocks.

Series:

Working Paper No. 18/100

Subject:

English

Publication Date:

May 9, 2018

ISBN/ISSN:

9781484354582/1018-5941

Stock No:

WPIEA2018100

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

52

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