A Comparison of Estimation Methods for Dynamic Factor Models of Large Dimensions
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 methodology for estimating factors from large datasets based on state space models, discuss its theoretical properties and compare its performance with that of two alternative estimation approaches based, respectively, on static and dynamic principal components. The new method appears to perform best in recovering the factors in a set of simulation experiments, with static principal components a close second best. Dynamic principal components appear to yield the best fit, but sometimes there are leakages across the common and idiosyncratic components of the series. A similar pattern emerges in an empirical application with a large dataset of US macroeconomic time series.
|Date of creation:||Apr 2003|
|Date of revision:|
|Note:||A revised version is available at the personal homepage of George Kapetanios .|
|Contact details of provider:|| Postal: London E1 4NS|
Phone: +44 (0) 20 7882 5096
Fax: +44 (0) 20 8983 3580
Web page: http://www.econ.qmul.ac.uk
More information through EDIRC
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.:
- Massimiliano Marcellino & Carlo A. Favero & Francesca Neglia, 2005.
"Principal components at work: the empirical analysis of monetary policy with large data sets,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 20(5), pages 603-620.
- Carlo Ambrogio Favero & Massimilano Marcellino & Francesca Neglia, . "Principal components at work: The empirical analysis of monetary policy with large datasets," Working Papers 223, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- 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.
- Gonzalo Camba-Mendez & George Kapetanios & Richard J. Smith & Martin R. Weale, 2001. "An automatic leading indicator of economic activity: forecasting GDP growth for European countries," Econometrics Journal, Royal Economic Society, vol. 4(1), pages 37.
When requesting a correction, please mention this item's handle: RePEc:qmw:qmwecw:wp489. 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: (Nick Vriend)
If references are entirely missing, you can add them using this form.