Sectoral shocks and business cycles: a disaggregated analysis of output fluctuations in the UK
Author: Caporale, Guglielmo Maria
Source: Applied Economics, Volume 29, Number 11, 1 November 1997 , pp. 1477-1482(6)
Abstract:In this paper we first show that it is possible to modify linear real business cycle models to allow for disaggregate (industry-specific) factors in the generation of macroeconomic fluctuations. We then try to determine the relative importance of aggregate and sectoral shocks by doing principal components analysis on the residuals from a VAR of output growth rates in 19 UK industrial sectors. We find that a significant percentage of the innovations in sectoral output growths can be accounted for by a single unobserved component. However, since the model only sets an upper bound to the explanatory power of aggregate impulses, the importance of using sectoral data to extract additional information to bear on the analysis of economic fluctuations is confirmed by our findings.
Document Type: Research Article
Publication date: November 1, 1997