Modeling European regional output dynamics using a dynamic multi-level factor model

In this project we aim to develop a flexible dynamic factor model for European regions. Taking a regional stance allows us to gain deep insights on the relationship between individual regions and phenomena like country-specific or global business cycle fluctuations. Our proposed modelling approach allows answering a rich set of possible research questions. For instance, it could provide new insights on how business cycle shocks propagate through Europe. In addition, we aim to provide new evidence on the degree of business cycle synchronisation over time, employing a time-varying parameter framework. Finally, to assess how well our model fits the data we also plan to perform a forecasting exercise where we predict regional output growth in Europe.