Working Paper: CEPR ID: DP5621
Authors: George Kapetanios; Massimiliano Marcellino
Abstract: The estimation of structural dynamic factor models (DFMs) for large sets of variables is attracting considerable attention. In this paper we briefly review the underlying theory and then compare the impulse response functions resulting from two alternative estimation methods for the DFM. Finally, as an example, we reconsider the issue of the identification of the driving forces of the US economy, using data for about 150 macroeconomic variables.
Keywords: factor models; principal components; structural identification; structural VAR; subspace algorithms
JEL Codes: C32; C51; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structural shocks (E32) | macroeconomic outcomes (E66) |
| supply shock (E65) | industrial production (L69) |
| supply shock (E65) | inflation (E31) |
| negative demand shock (E31) | industrial production (L69) |
| negative demand shock (E31) | inflation (E31) |
| negative demand shock (E31) | interest rates (E43) |
| monetary shocks (E39) | macroeconomic outcomes (E66) |