Journal of Political Economy Vol. 119 No. 1 2011
Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production
Abstract
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.
- DOI
- 10.1086/659311
- Volume
- 119
- Issue
- 1
- Pages
- 1-38
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref