Real Sectoral Spillovers: A Dynamic Factor Analysis of the Great Recession
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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. 2018/100
Subject:
Econometric analysis Economic sectors Factor models Financial crises Global financial crisis of 2008-2009 Manufacturing Production Production growth Structural vector autoregression Vector autoregression
English
Publication Date:
May 9, 2018
ISBN/ISSN:
9781484354582/1018-5941
Stock No:
WPIEA2018100
Pages:
52
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