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Factor Analysis Of A Large Dsge Model


  • Alexei Onatski
  • Francisco Ruge‐Murcia


We study the workings of the factor analysis of high-dimensional data using artificial series generated from a large, multi-sector dynamic stochastic general equilibrium (DSGE) model. The objective is to use the DSGE model as a laboratory that allows us to shed some light on the practical benefits and limitations of using factor analysis techniques on economic data. We explain in what sense the artificial data can be thought of having a factor structure, study the theoretical and finite sample properties of the principal components estimates of the factor space, investigate the substantive reason(s) for the good performance of diffusion index forecasts, and assess the quality of the factor analysis of highly disaggregated data. In all our exercises, we explain the precise relationship between the factors and the basic macroeconomic shocks postulated by the model.
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  • Alexei Onatski & Francisco Ruge‐Murcia, 2013. "Factor Analysis Of A Large Dsge Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(6), pages 903-928, September.
  • Handle: RePEc:wly:japmet:v:28:y:2013:i:6:p:903-928

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    References listed on IDEAS

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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Econometrics > Time Series Models > Dynamic Factor Models > Structural Factor Models

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    More about this item

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles


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