The generalised dynamic factor model: identification and estimation
AbstractThis paper analyzes identification conditions, and proposes an estimator, for a dynamic factor model where the idiosyncratic components are allowed to be mutually non-orthogonal. This model, which we call the generalized dynamic factor model, is novel to the literature, and generalizes the static approximate factor model of Chamberlain and Rothschild (1983), as well as the exact factor model Ã la Sargent and Sims (1977). We propose an estimator of the common components and prove convergence as both time and cross-sectional size go to infinity at appropriate rates. Simulations yield encouraging results in small samples. We use our model to construct an index of the state of the economy for the European currency area. Such an index is defined as the common component of real GDP within a model including several macroeconomic variables for each European country.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/10143.
Date of creation: 01 Nov 2000
Date of revision:
Publication status: Published in: The Review of Economics and Statistics (2000) v.82 nÂ° 4,p.540-554
Other versions of this item:
- Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
- Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
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- Mario Forni & Lucrezia Reichlin, 1996.
"Dynamic common factors in large cross-sections,"
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ULB Institutional Repository
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- Forni, Mario & Lippi, Marco, 1997. "Aggregation and the Microfoundations of Dynamic Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198288008.
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