The Generalized Dynamic Factor Model: Identification and Estimation
This 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 à 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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Dec 1999|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Forni, Mario & Lippi, Marco, 1997. "Aggregation and the Microfoundations of Dynamic Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198288008, December.
- Mario Forni & Lucrezia Reichlin, 1998.
"Let's get real: a factor analytical approach to disaggregated business cycle dynamics,"
ULB Institutional Repository
2013/10147, ULB -- Universite Libre de Bruxelles.
- Mario Forni & Lucrezia Reichlin, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 453-473.
- Forni, Mario & Lippi, Marco, 2001.
"The Generalized Dynamic Factor Model: Representation Theory,"
Cambridge University Press, vol. 17(06), pages 1113-1141, December.
- Forni, Mario & Lippi, Marco, 2000. "The Generalized Dynamic Factor Model: Representation Theory," CEPR Discussion Papers 2509, C.E.P.R. Discussion Papers.
- Chamberlain, Gary, 1983. "Funds, Factors, and Diversification in Arbitrage Pricing Models," Econometrica, Econometric Society, vol. 51(5), pages 1305-23, September.
- Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, May.
- Stock, J.H. & Watson, M.W., 1989.
"New Indexes Of Coincident And Leading Economic Indicators,"
178d, Harvard - J.F. Kennedy School of Government.
- James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
- Forni, Mario & Reichlin, Lucrezia, 1995.
"Dynamic Common Factors in Large Cross-Sections,"
CEPR Discussion Papers
1285, C.E.P.R. Discussion Papers.
- Lucrezia Reichlin & Mario Forni, 1999.
"National policies and local economies: Europe and the United States,"
ULB Institutional Repository
2013/10181, ULB -- Universite Libre de Bruxelles.
- Forni, Mario & Reichlin, Lucrezia, 1997. "National Policies and Local Economies: Europe and the United States," CEPR Discussion Papers 1632, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2338. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.