The Generalized Dynamic-Factor Model: Identification And Estimation
This paper proposes a factor model with infinite dynamics and nonorthogonal idiosyncratic components. The 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 à la Sargent and Sims (1977). We provide identification conditions, propose an estimator of the common components, prove convergence as both time and cross-sectional size go to infinity at appropriate rates, and present simulation results. We use our model to construct a coincident index for the European Union. Such index is defined as the common component of real GDP within a model including several macroeconomic variables for each European country. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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Volume (Year): 82 (2000)
Issue (Month): 4 (November)
Pages: 540-554
| Handle: | RePEc:tpr:restat:v:82:y:2000:i:4:p:540-554 |
| Contact details of provider: | Web page: http://mitpress.mit.edu/journals/
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| Order Information: | Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535 |
References listed on IDEAS
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