IMF Working Papers

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

By Nan Li, Vance Martin

May 9, 2018

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Nan Li, and Vance Martin. Real Sectoral Spillovers: A Dynamic Factor Analysis of the Great Recession, (USA: International Monetary Fund, 2018) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Econometric analysis, Economic sectors, Factor models, Financial crises, Global financial crisis of 2008-2009, Manufacturing, Production, Production growth, Structural vector autoregression, Vector autoregression

Keywords: Aggregate output, Contribution estimate, Dynamic Factor Models, Factor demand, Factor models, FSW model, Global financial crisis of 2008-2009, GR period, Hybrid model, Input-output Structure, Intersectoral Linkages, Manufacturing, Period of the Great Recession, Production growth, Real Business Cycles, Recession period, Sector share distribution, Share contribution, Spillovers, Time series, Transmission mechanism, Vector autoregression, WP

Publication Details

  • Pages:

    52

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/100

  • Stock No:

    WPIEA2018100

  • ISBN:

    9781484354582

  • ISSN:

    1018-5941

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