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One-Sided Representations of Generalized Dynamic Factor Models

  • Mario Forni

    (Università di Modena e Reggio Emilia, CEPR and RECent)

  • Marc Hallin

    (ECARES, Université Libre de Bruxelles and ORFE, Princeton University)

  • Marco Lippi

    (Università di Roma "La Sapienza" and EIEF)

  • Paolo Zaffaroni

    (Imperial College London and Università di Roma "La Sapienza")

Factor model methods recently have become extremely popular in the theory and practice of large panels of time series data. Those methods rely on various factor models which all are particular cases of the Generalized Dynamic Factor Model (GDFM) introduced in Forni, Hallin, Lippi and Reichlin (2000). In that paper, however, estimation relies on Brillinger’s concept of dynamic principal components, which produces filters that are in general two-sided and therefore yield poor performances at the end of the observation period and hardly can be used for forecasting purposes. In the present paper, we remedy this problem, and show how, based on recent results on singular stationary processes with rational spectra, one-sided estimators are possible for the parameters and the common shocks in the GDFM. Consistency is obtained, along with rates. An empirical section, based on US macroeconomic time series, compares estimates based on our model with those based on the usual staticrepresentation restriction, and provide convincing evidence that the assumptions underlying the latter are not supported by the data.

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File URL: http://www.dss.uniroma1.it/RePec/sas/wpaper/20115_FHLZ.pdf
File Function: First version, 2011
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Paper provided by Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome in its series DSS Empirical Economics and Econometrics Working Papers Series with number 2011/5.

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Length: 62 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:sas:wpaper:20115
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  1. repec:sol:wpaper:10-021 is not listed on IDEAS
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  3. Forni, Mario & Lippi, Marco, 2001. "The Generalized Dynamic Factor Model: Representation Theory," Econometric Theory, Cambridge University Press, vol. 17(06), pages 1113-1141, December.
  4. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
  5. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2002. "The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting," CEPR Discussion Papers 3432, C.E.P.R. Discussion Papers.
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