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Cointegration and common factors

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  • Escribano, Álvaro
  • Peña, Daniel

Abstract

Alternative common factors representations for cointegrated vectors are studied. It is shown that dynamic factor models produce as particular cases the alternative common trend representations for cointegrated variables available in the literature, including the one of Stock and Watson(1988). Furthermore, it is proved that common factor representations with I(1) components imply cointegration. A more efficient procedure for fmding the numbers of cointegrated vectors based on this dynamic factors model is suggested.

Suggested Citation

  • Escribano, Álvaro & Peña, Daniel, 1993. "Cointegration and common factors," DES - Working Papers. Statistics and Econometrics. WS 3680, Universidad Carlos III de Madrid. Departamento de Estadística.
    • Handle: RePEc:cte:wsrepe:3680
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    References listed on IDEAS

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    3. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
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    Keywords

    Dynamic factors models;

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