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Dynamic factor models

Author

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  • Breitung, Jörg
  • Eickmeier, Sandra

Abstract

Factor models can cope with many variables without running into scarce degrees of freedom problems often faced in a regression-based analysis. In this article we review recent work on dynamic factor models that have become popular in macroeconomic policy analysis and forecasting. By means of an empirical application we demonstrate that these models turn out to be useful in investigating macroeconomic problems.

Suggested Citation

  • Breitung, Jörg & Eickmeier, Sandra, 2005. "Dynamic factor models," Discussion Paper Series 1: Economic Studies 2005,38, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp1:4232
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    More about this item

    Keywords

    Principal components; dynamic factors; forecasting;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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