JSM 2011 Online Program

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Abstract Details

Activity Number: 84
Type: Contributed
Date/Time: Sunday, July 31, 2011 : 4:00 PM to 5:50 PM
Sponsor: Business and Economic Statistics Section
Abstract - #302476
Title: An Endogenous Clustered Factor Approach to International Business Cycles
Author(s): Michael Owyang*+ and Neville Francis and Ozge Savascin
Companies: Federal Reserve Bank of St. Louis and The University of North Carolina at Chapel Hill and The University of North Carolina at Chapel Hill
Address: P.O. Box 442, St. Louis, MO, 63166,
Keywords: factor model ; block factor model ; cluster analysis ; mcmc ; reversible jump metropolis hastings
Abstract:

Factor models have become useful tools for studying international business cycles. Block factor models [e.g., Kose, Otrok, and Whiteman (2003)] can be especially useful as the blocks --created by zero restrictions on the loadings of some factors for select series -- may provide some economic intuitition about the nature of the factors. These types of models, however, require the econometrician to predefine the clocks, leading to potenial misspecification. We propose an alternative model in which the blocks are chosen endogenously. The model is estimated in a BAyesian framework using a hierarchical prior which allows us to incorporate series-level covariates which may influence and explain how the series are grouped. Using similar international business cycle data as Kose, Otrok, and Whiteman, we find our country clusters differ in important ways to those identified by geography alone.


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