How do individual sectors respond to macroeconomic shocks? A structural dynamic factor approach applied to Swiss data – Gregor Baurle and Elizabeth Steiner, September 5, 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.”