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A Parametric Estimation Method for Dynamic Factor Models of Large Dimensions

  • Kapetanios, George
  • Marcellino, Massimiliano

The estimation of dynamic factor models for large sets of variables has attracted considerable attention recently, due to the increased availability of large datasets. In this paper we propose a new parametric methodology for estimating factors from large datasets based on state space models and discuss its theoretical properties. In particular, we show that it is possible to estimate consistently the factor space. We also develop a consistent information criterion for the determination of the number of factors to be included in the model. Finally, we conduct a set of simulation experiments that show that our approach compares well with existing alternatives.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5620.

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Date of creation: Apr 2006
Date of revision:
Handle: RePEc:cpr:ceprdp:5620
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  1. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2000. "Reference Cycles: The NBER Methodology Revisited," CEPR Discussion Papers 2400, C.E.P.R. Discussion Papers.
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  13. George Kapetanios & Massimiliano Marcellino, 2003. "A Comparison of Estimation Methods for Dynamic Factor Models of Large Dimensions," Working Papers 489, Queen Mary University of London, School of Economics and Finance.
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