The generalised dynamic factor model: identification and estimation
This paper proposes a factor model with infinite dynamics and nonorthogonal idiosyncratic components. The model, which we call the generalized dynamic-factor model, is novel to the literature and generalizes the static approximate factor model of Chamberlain and Rothschild (1983), as well as the exact factor model à la Sargent and Sims (1977). We provide identification conditions, propose an estimator of the common components, prove convergence as both time and cross-sectional size go to infinity at appropriate rates, and present simulation results. We use our model to construct a coincident index for the European Union. Such index is defined as the common component of real GDP within a model including several macroeconomic variables for each European country. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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|Date of creation:||01 Nov 2000|
|Publication status:||Published in: The Review of Economics and Statistics (2000) v.82 n° 4,p.540-554|
|Contact details of provider:|| Postal: CP135, 50, avenue F.D. Roosevelt, 1050 Bruxelles|
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178d, Harvard - J.F. Kennedy School of Government.
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