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Common factors in conditional distributions

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Author Info
Granger, Clive W.J. () (Department of Economics, University of California, San Diego)
Teräsvirta, Timo () (Dept. of Economic Statistics, Stockholm School of Economics)
Patton, Andrew J. () (Department of Economics, London School of Economics)

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Abstract

The concept of common factors has in the econometrics literature been applied to conditional means or in some cases to conditional variances. In this paper we generalize this concept to bivariate distributions. This is done using the conditional bivariate copula as the statistical tool. The definition of common factors in distributions is illustrated by an empirical application to the income-consumption relationship, using monthly US time series. Evidence is found to support the claim that the true relationship between these variables is independent of the phase of the business cycle. The indicator representing the business cycle is thus a common factor in distributions of the type defined and discussed in the paper.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 515.

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Length: 12 pages
Date of creation: 20 Nov 2002
Date of revision:
Publication status: Published in Journal of Econometrics, 2006, pages 43-57.
Handle: RePEc:hhs:hastef:0515

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Related research
Keywords: bivariate time series; business cycles; conditional distribution; consumption-income relationship; copula; multivariate time-series model;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Issler, Joao Victor & Vahid, Farshid, 2001. "Common cycles and the importance of transitory shocks to macroeconomic aggregates," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 449-475, June. [Downloadable!] (restricted)
  2. Andrew Patton, 2001. "Estimation of Copula Models for Time Series of Possibly Different Length," University of California at San Diego, Economics Working Paper Series 2001-17, Department of Economics, UC San Diego. [Downloadable!]
  3. Hansen, Bruce E, 1994. "Autoregressive Conditional Density Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 705-30, August. [Downloadable!] (restricted)
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  4. Andrew J. Patton, 2001. "Modelling Time-Varying Exchange Rate Dependence Using the Conditional Copula," University of California at San Diego, Economics Working Paper Series 2001-09, Department of Economics, UC San Diego. [Downloadable!]
  5. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Xiaohong Chen & Yanqin Fan, 2002. "Estimation of Copula-Based Semiparametric Time Series Models," Working Papers 0226, Department of Economics, Vanderbilt University, revised Oct 2004. [Downloadable!]
  2. Xiaohong Chen & Yanqin Fan & Victor Tsyrennifov, 2002. "Efficient Estimation of Semiparametric Multivariate Copula Models," Working Papers 0420, Department of Economics, Vanderbilt University, revised Sep 2004. [Downloadable!]
    Other versions:
  3. Manner, Hans, 2007. "Estimation and Model Selection of Copulas with an Application to Exchange Rates," Research Memoranda 056, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  4. Jesus Gonzalo & Jose Olmo, 2005. "Contagion Versus Flight To Quality In Financial Markets," Economics Working Papers we051810, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  5. Manner, Hans & Candelon, Bertrand, 2007. "Testing for Asset Market Linkages: A new Approach based on Time-Varying Copulas," Research Memoranda 052, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  6. Yanqin Fan & Xiaohong Chen, 2004. "Estimation of Copula-Based Semiparametric Time Series Models," Econometric Society 2004 Far Eastern Meetings 559, Econometric Society. [Downloadable!]
  7. Xiaohong Chen & Yanqin Fan, 2004. "Estimation and Model Selection of Semiparametric Copula-Based Multivariate Dynamic Models under Copula Misspecification," Working Papers 0419, Department of Economics, Vanderbilt University, revised Sep 2004. [Downloadable!]
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