Common stationary and non-stationary factors in the euro area analyzed in a large-scale factor model

Arbeitspapier

In this paper we rely on techniques recently developed by Bai and Ng (2004a) to estimate common euro-area stationary and non-stationary factors using a large-scale dynamic factor model. We find that euro-area economies share four non-stationary factors or trends and one stationary factor. By means of rotation techniques, we estimate a euro-area business cycle which is a fairly good match to EuroCOIN, the euro-area coincident business cycle indicator published by the CEPR. Fluctuations of common euro-area factors mainly reflect variations of German and French real economic activity as well as of producer prices and financial prices (long-term interest rates and/or real effective exchange rates) in various countries. As concerns the transmission channels, macroeconomic shocks seem to proliferate in the euro area more strongly through trade, exchange rates and long-term interest rates than through stock prices. Among the external driving forces, shocks to US economic activity seem to be more strongly linked to shocks to the euro-area factors than oil price shocks. We finally find evidence of mild overall convergence; results for individual countries are mixed.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2005,02

Classification and Topics

• Classification: Wirtschaft ; Econometric Modeling: General ; Macroeconomic Aspects of International Trade and Finance: General ; International Economic Order and Integration ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• Subject: Dynamic factor models ; factor rotation ; common trends ; international business cycles ; international transmission channels ; Konjunkturzusammenhang ; Europäische Wirtschafts- und Währungsunion ; Faktorenanalyse ; Schätzung ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eickmeier, Sandra
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/19510
• Last update: 10.03.2025, 11:43 AM CET