Information, data dimension and factor structure
This paper employs concepts from information theory for choosing the dimension of a data set. We propose a relative information measure connected to Kullback–Leibler numbers. By ordering the series of the data set according to the measure, we are able to obtain a subset of a data set that is most informative. The method can be used as a first step in the construction of a dynamic factor model or a leading index, as illustrated with a Monte Carlo study and with the US macroeconomic data set of Stock and Watson .
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Volume (Year): 106 (2012)
Issue (Month): C ()
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- Bai, Jushan & Ng, Serena, 2008. "Forecasting economic time series using targeted predictors," Journal of Econometrics, Elsevier, vol. 146(2), pages 304-317, October.
- Hallin, Marc & Liska, Roman, 2007. "Determining the Number of Factors in the General Dynamic Factor Model," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 603-617, June.
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- 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.
- Bai, Jushan & Ng, Serena, 2007. "Determining the Number of Primitive Shocks in Factor Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 52-60, January.
- Hui Zou & Trevor Hastie, 2005. "Addendum: Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(5), pages 768-768.
- Jan Jacobs & Pieter Otter, 2008. "Determining the Number of Factors and Lag Order in Dynamic Factor Models: A Minimum Entropy Approach," Econometric Reviews, Taylor & Francis Journals, vol. 27(4-6), pages 385-397.
- Bai, Jushan & Ng, Serena, 2008. "Large Dimensional Factor Analysis," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(2), pages 89-163, June.
- Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
- Hui Zou & Trevor Hastie, 2005. "Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(2), pages 301-320. Full references (including those not matched with items on IDEAS)
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