France in the global economy: a structural approximate dynamic factor model analysis |
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Authors: | Alain Kabundi Francisco Nadal De Simone |
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Institution: | (1) Dipartimento di Economia Politica, Università di Modena, Viale Berengario, 51, 41110 Modena, Italy |
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Abstract: | This study identifies the main shocks that cause fluctuations in French output and their channels of transmission. It uses
a large-dimensional structural approximate dynamic factor model. There are three main findings. First, common shocks, especially
demand shocks, which seem to originate from the U.S., play an important role in explaining French economic activity. While
international trade, relative prices, and foreign direct investment (FDI) flows are the main channels of transmission, the
stock market, consumer confidence, and interest rates also matter. Second, France’s integration with the rest of the world
has increased over time. Third, there is some tentative evidence of regional components in explaining French output fluctuations;
country-specific components also contribute. The predominance of exogenous factors affecting French output, the asymmetry
in the transmission of shocks, and France’s participation in a currency area argue for making French goods, services, and
labor markets as flexible as possible. |
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