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Common factors in conditional distributions for Bivariate time series

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  • Granger, Clive W. J.
  • Terasvirta, Timo
  • Patton, Andrew J.

Abstract

A definition for a common factor for bivariate time series is suggested by considering the decomposition of the conditional density into the product of the marginals and the copula, with the conditioning variable being a common factor if it does not directly enter the copula. The links of this definition with a common factor being a dominant feature in standard linear representations is shown. An application using a business cycle indicator as the common factor in the relationship between U.S. income and consumption found that both series held the factor in their marginals but not in the copula.

Suggested Citation

  • Granger, Clive W. J. & Terasvirta, Timo & Patton, Andrew J., 2003. "Common factors in conditional distributions for Bivariate time series," LSE Research Online Documents on Economics 24854, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:24854
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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