How do individual sectors respond to macroeconomic shocks? A structural dynamic factor approach applied to Swiss data

by Sabrina I. Pacifici on November 4, 2013

“Surprisingly little empirical work is available on how individual production sectors
respond to macroeconomic shocks. The model developed in this paper quantifies
the impact of monetary policy, exchange rates and external demand on the various
production sectors of the Swiss economy. Our results show that such shocks are
incompletely transmitted and that their effect is heterogeneous across sectors. The
information gained through this work is new and a useful contribution for policy-
makers as it enables them to assess the consequences of their decisions on the various
sectors. The analysis is done in the framework of a structural dynamic factor model
in order to cope with the large data dimensions. The model is estimated on Swiss
data, but because it is carefully specified to capture the macroeconomic dynamics of
a large set of variables in a small and open economy, its specification may also serve as a benchmark for other countries with this attribute.”

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