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Implications of Dynamic Factor Models for VAR Analysis Author info | Abstract | Publisher info | Download info | Related research | Statistics James H. Stock
Mark W. Watson
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This paper considers VAR models incorporating many time series that interact through a few dynamic factors. Several econometric issues are addressed including estimation of the number of dynamic factors and tests for the factor restrictions imposed on the VAR. Structural VAR identification based on timing restrictions, long run restrictions, and restrictions on factor loadings are discussed and practical computational methods suggested. Empirical analysis using U.S. data suggest several (7) dynamic factors, rejection of the exact dynamic factor model but support for an approximate factor model, and sensible results for a SVAR that identifies money policy shocks using timing restrictions.
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Date of creation: Jul 2005Date of revision:
Handle: RePEc:nbr:nberwo:11467Note: EFGContact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
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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 E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
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