In this paper we study the selection of the number of primitive shocks in exact and approximate factor models in the presence of structural instability. The empirical analysis shows that the estimated number of factors varies substantially across several selection methods and over the last 30...

What is the size of the government-spending multiplier in an open economy when the Zero Lower Bound (ZLB) on the nominal interest rate is binding? Using a theoretical framework, in a closed economy, Christiano, Eichenbaum, and Rebelo (2011), show that, when the nominal interest rate is binding,...

This paper proposes a simple model of a mechanism through which exchange rate can affect the link between output and government spending in zero lower bound (ZLB) periods. In our proposed model, the expected near-future interest rate is added as an endogenous variable. Unlike existing AA-DD...