Factoring in the Micro: A Transaction-Level Dynamic Factor Approach to the Decomposition of Export Volatility

This paper analyzes the export volatility sources estimating a dynamic factor model on transaction-level data. Utilizing an exhaustive dataset of French export transactions from 1993 to 2017, we reconstruct the latent factors space associated with global and destination-specific macroeconomic shocks through a Quasi-Maximum likelihood approach which allows accommodating both the high share of missing values and the high dimensionality of the microeconomic time series. The estimated parameters are then used to derive a volatility decomposition of the aggregate and firm-level export growth rates, highlighting structural spatial patterns and the role of geographical diversification in mitigating export risks.