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Time Series Factor Analysis with an Application to Measuring Money

  • Gilbert, Paul D.
  • Meijer, Erik

    (Groningen University)

Time series factor analysis (TSFA) and its associated statistical theory is developed. Unlike dynamic factor analysis (DFA), TSFA obviates the need for explicitly modeling the process dynamics of the underlying phenomena. It also differs from standard factor analysis (FA) in important respects: the factor model has a nontrivial mean structure, the observations are allowed to be dependent over time, and the data does not need to be covariance stationary as long as differenced data satisfies a weak boundedness condition. The effects on the estimation of parameters and prediction of the factors is discussed. The statistical properties of the factor score predictor are studied in a simulation study, both over repeated samples and within a given sample. Some apparent anomalies are found in simulation experiments and explained analytically.

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File URL: http://irs.ub.rug.nl/ppn/289322812
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Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 05F10.

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Date of creation: 2005
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Handle: RePEc:dgr:rugsom:05f10
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  1. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
  2. Jakob de Haan & Erik Leertouwer & Erik Meijer & Tom Wansbeek, 2003. "Measuring central bank independence: a latent variables approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 326-340, 08.
  3. T. Anderson, 1963. "The use of factor analysis in the statistical analysis of multiple time series," Psychometrika, Springer, vol. 28(1), pages 1-25, March.
  4. Robert Jennrich, 1973. "Standard errors for obliquely rotated factor loadings," Psychometrika, Springer, vol. 38(4), pages 593-604, December.
  5. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  6. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  7. Paul D. Gilbert & Lise Pichette, 2003. "Dynamic Factor Analysis for Measuring Money," Working Papers 03-21, Bank of Canada.
  8. Spanos, Aris, 1984. "Liquidity as a Latent Variable-An Application of the MIMIC Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(2), pages 125-43, May.
  9. Chamberlain, Gary & Rothschild, Michael, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Scholarly Articles 3230355, Harvard University Department of Economics.
  10. Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
  11. Peter Molenaar, 1985. "A dynamic factor model for the analysis of multivariate time series," Psychometrika, Springer, vol. 50(2), pages 181-202, June.
  12. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  13. Claude Archer & Robert Jennrich, 1973. "Standard errors for rotated factor loadings," Psychometrika, Springer, vol. 38(4), pages 581-592, December.
  14. Erik Meijer & Tom Wansbeek, 1999. "Quadratic prediction of factor scores," Psychometrika, Springer, vol. 64(4), pages 495-507, December.
  15. Robert M. De Jong & James Davidson, 2000. "Consistency of Kernel Estimators of Heteroscedastic and Autocorrelated Covariance Matrices," Econometrica, Econometric Society, vol. 68(2), pages 407-424, March.
  16. Watson, Mark W. & Engle, Robert F., 1983. "Alternative algorithms for the estimation of dynamic factor, mimic and varying coefficient regression models," Journal of Econometrics, Elsevier, vol. 23(3), pages 385-400, December.
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