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- Title
THE GENERALIZED DYNAMIC-FACTOR MODEL: IDENTIFICATION AND ESTIMATION.
- Authors
Forni, Mario; Hallin, Marc; Lippi, Marco; Reichlin, Lucrezia
- Abstract
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.
- Subjects
EUROPEAN Union countries; STATISTICS; IDIOSYNCRATIC drug reactions; PHARMACODYNAMICS; EUROPEAN Union; GROSS domestic product; ECONOMIC indicators; ESTIMATION theory; STOCHASTIC convergence; FACTOR analysis
- Publication
Review of Economics & Statistics, 2000, Vol 82, Issue 4, p540
- ISSN
0034-6535
- Publication type
Article
- DOI
10.1162/003465300559037