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A parametric estimation method for dynamic factor models of large dimensions

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  • George Kapetanios
  • Massimiliano Marcellino

Abstract

The estimation of dynamic factor models for large sets of variables has attracted considerable attention recently, because of the increased availability of large data sets. In this article we propose a new parametric methodology for estimating factors from large data sets based on state-space models and discuss its theoretical properties. In particular, we show that it is possible to estimate consistently the factor space. We also conduct a set of simulation experiments that show that our approach compares well with existing alternatives. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Time Series Analysis.

Volume (Year): 30 (2009)
Issue (Month): 2 (03)
Pages: 208-238

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Handle: RePEc:bla:jtsera:v:30:y:2009:i:2:p:208-238

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  1. Forni, Mario & Reichlin, Lucrezia, 1995. "Dynamic Common Factors in Large Cross-Sections," CEPR Discussion Papers 1285, C.E.P.R. Discussion Papers.
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  8. George Kapetanios & Massimiliano Marcellino, 2003. "A Comparison of Estimation Methods for Dynamic Factor Models of Large Dimensions," Working Papers 489, Queen Mary, University of London, School of Economics and Finance.
  9. Forni, Mario & Reichlin, Lucrezia, 1997. "National Policies and Local Economies: Europe and the United States," CEPR Discussion Papers 1632, C.E.P.R. Discussion Papers.
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  14. Sin, Chor-Yiu & White, Halbert, 1996. "Information criteria for selecting possibly misspecified parametric models," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 207-225.
  15. Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
  16. James H. Stock & Mark W. Watson, 1988. "A Probability Model of The Coincident Economic Indicators," NBER Working Papers 2772, National Bureau of Economic Research, Inc.
  17. Connor, Gregory & Korajczyk, Robert A, 1993. " A Test for the Number of Factors in an Approximate Factor Model," Journal of Finance, American Finance Association, vol. 48(4), pages 1263-91, September.
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