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How do Individual Sectors Respond to Macroeconomic Shocks? A Structural Dynamic Factor Approach Applied to Swiss Data

Summary

This paper quantifies the impact of monetary policy, exchange rates and external demand on the production sectors of the Swiss economy. As the model covers the full set of production sectors it is possible through aggregation to estimate the impact of a given shock on total GDP. We conduct the analysis in the framework of a Bayesian structural dynamic factor model. Our approach proves to be useful to cope with the large data set and at the same time allows us to consistently identify fundamental aggregate shocks. We find that monetary variables, such as interest rates and exchange rates, mainly influence the financial sectors. Variations in value added in the manufacturing sectors or business services, on the other hand, are markedly influenced by changes in external demand, but show a weaker and slower reaction to monetary variables.

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Correspondence to Gregor Bäurle.

Additional information

Many thanks to Daniel Burren, Daniel Kaufmann, Matthias Lutz, Bruno Parnisari and Rolf Scheufele for their useful comments and suggestions. We are also grateful to Cédric Tille, editor at the Swiss Journal of Economics and Statistics and two anonymous referees for their careful reading of the paper and their help to improve our paper. Furthermore, we thank the participants at the Swiss National Bank Brown Bag Seminar, at a workshop hosted by the State Secretariat for Economic Affairs in 2013 and at the SSES conference 2012 in Zurich for valuable inputs. The views expressed here are those of the authors and do not necessarily reflect the views of the Swiss National Bank.

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Bäurle, G., Steiner, E. How do Individual Sectors Respond to Macroeconomic Shocks? A Structural Dynamic Factor Approach Applied to Swiss Data. Swiss J Economics Statistics 151, 167–225 (2015). https://doi.org/10.1007/BF03399416

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JEL-Classification

  • C1
  • C3
  • E33

Keyword

  • Sectoral value added
  • dynamic factor model
  • sign restrictions