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Working Paper
Identification Through Sparsity in Factor Models
Freyaldenhoven, Simon (2020-06-22)
Factor models are generally subject to a rotational indeterminacy, meaning that individual factors are only identified up to a rotation. In the presence of local factors, which only affect a subset of the outcomes, we show that the implied sparsity of the loading matrix can be used to solve this rotational indeterminacy. We further prove that a rotation criterion based on the 1-norm of the loading matrix can be used to achieve identification even under approximate sparsity in the loading matrix. This enables us to consistently estimate individual factors, and to interpret them as structural ...
Working Papers , Paper 20-25

Working Paper
Tracking U.S. Consumers in Real Time with a New Weekly Index of Retail Trade
Aaronson, Daniel; Brave, Scott A.; Karger, Ezra; Fogarty, Michael; Krane, Spencer D. (2021-06-18)
We create a new weekly index of retail trade that accurately predicts the U.S. Census Bureau's Monthly Retail Trade Survey (MRTS). The index's weekly frequency provides an early snapshot of the MRTS and allows for a more granular analysis of the aggregate consumer response to fast-moving events such as the Covid-19 pandemic. To construct the index, we extract the co-movement in weekly data series capturing credit and debit card transactions, foot traffic, gasoline sales, and consumer sentiment. To ensure that the index is representative of aggregate retail spending, we implementa novel ...
Working Paper Series , Paper WP-2021-05

Working Paper
The Factor Structure of Disagreement
Herbst, Edward P.; Winkler, Fabian (2021-07-30)
We estimate a Bayesian three-dimensional dynamic factor model on the individual forecasts in the Survey of Professional Forecasters. The factors extract the most important dimensions along which disagreement comoves across variables. We interpret our results through a general semi-structural dispersed information model. The two most important factors in the data describe disagreement about aggregate supply and demand, respectively. Up until the Great Moderation, supply disagreement was dominant, while in recent decades and particularly during the Great Recession, demand disagreement was most ...
Finance and Economics Discussion Series , Paper 2021-046

What Does the NFCI Tell Us About Future Economic Growth?
Gillet, Max; Brave, Scott A. (2024-06)
The Federal Reserve’s policy tools rely on financial markets to transmit changes in monetary policy to the real economy. For instance, changes in short-term interest rates set by the Fed and faced by financial institutions—e.g., the federal funds rate—affect longer-term rates paid by firms and households. These rate changes in turn impact borrowing and spending decisions. Understanding the current state of financial conditions is, thus, both critical to central bankers and of interest to the wider public.
Chicago Fed Insights

Working Paper
Individual Social Capital and Migration
Rupasingha, Anil; Hotchkiss, Julie L. (2018-03-01)
This paper determines how individual, relative to community, social capital affects individual migration decisions. We make use of nonpublic data from the Social Capital Community Benchmark Survey to predict multidimensional social capital for observations in the Current Population Survey. We find evidence that individuals are much less likely to have moved to a community with average social capital levels lower than their own and that higher levels of community social capital act as positive pull-factor amenities. The importance of that amenity differs across urban/rural locations. We also ...
FRB Atlanta Working Paper , Paper 2018-3

Working Paper
Tracking U.S. Consumers in Real Time with a New Weekly Index of Retail Trade
Aaronson, Daniel; Brave, Scott A.; Karger, Ezra; Fogarty, Michael; Krane, Spencer D. (2021-03-04)
We create a new weekly index of retail trade that accurately predicts the U.S. Census Bureau’s Monthly Retail Trade Survey (MRTS). The index’s weekly frequency provides an early snapshot of the MRTS and allows for a more granular analysis of the aggregate implications of policies implemented during the Covid-19 pandemic. To construct the index, we extract the co-movement in several weekly data series capturing credit & debit card transactions and revenues, mobility, and consumer sentiment as well as monthly retail and food services sales excluding automotive spending (ex. autos) from the ...
Working Paper Series , Paper WP-2021-05

Working Paper
Corporate Bond Market Distress
Boyarchenko, Nina; Crump, Richard K.; Kovner, Anna; Shachar, Or (2024-09)
We link bond market functioning to future economic activity through a new measure, the Corporate Bond Market Distress Index (CMDI). The CMDI coalesces metrics from primary and secondary markets in real time, offering a unified measure to capture access to debt capital markets. The index correctly identifies periods of distress and predicts future realizations of commonly used measures of market functioning, while the converse is not the case. We show that disruptions in access to corporate bond markets have an economically material, statistically significant impact on the real economy, even ...
Working Paper , Paper 24-09

Working Paper
Dynamic Factor Copula Models with Estimated Cluster Assignments
Oh, Dong Hwan; Patton, Andrew J. (2022-05-06)
This paper proposes a dynamic multi-factor copula for use in high dimensional time series applications. A novel feature of our model is that the assignment of individual variables to groups is estimated from the data, rather than being pre-assigned using SIC industry codes, market capitalization ranks, or other ad hoc methods. We adapt the k-means clustering algorithm for use in our application and show that it has excellent finite-sample properties. Applying the new model to returns on 110 US equities, we find around 20 clusters to be optimal. In out-of-sample forecasts, we find that a model ...
Finance and Economics Discussion Series , Paper 2021-029r1

Working Paper
A Generalized Factor Model with Local Factors
Freyaldenhoven, Simon (2019-04-19)
I extend the theory on factor models by incorporating local factors into the model. Local factors only affect an unknown subset of the observed variables. This implies a continuum of eigenvalues of the covariance matrix, as is commonly observed in applications. I derive which factors are pervasive enough to be economically important and which factors are pervasive enough to be estimable using the common principal component estimator. I then introduce a new class of estimators to determine the number of those relevant factors. Unlike existing estimators, my estimators use not only the ...
Working Papers , Paper 19-23

Working Paper
Surprise and uncertainty indexes: real-time aggregation of real-activity macro surprises
Scotti, Chiara (2013)
I construct two daily, real-time, real activity indexes for the United States, Euro area, the United Kingdom, Canada, and Japan: (i) a surprise index that summarizes recent economic data surprises and measures optimism/pessimism about the state of the economy, and (ii) an uncertainty index that measures uncertainty related to the state of the economy. The surprise index preserves the properties of the underlying series in affecting asset prices, with the advantage of being a parsimonious summary measure of real-activity surprises. For the United States, the real-activity uncertainty index is ...
International Finance Discussion Papers , Paper 1093

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