One-Sided Representations of Generalized Dynamic Factor Models

Mario Forni, Marc Hallin, Marco Lippi and Paolo Zaffaroni

No 1106, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: In the present paper we study a semiparametric version of the Generalized Dynamic Factor Model introduced in Forni, Hallin, Lippi and Reichlin (2000). Precisely, we suppose that the common components have rational spectral density, while no parametric structure is assumed for the idiosyncratic components. The parametric structure assumed for the common components does not imply that the model has a static representation (though the converse implication holds), a strong restriction which is shared by most of the literature on large-dimensional dynamic factor models. We use recent results on singular stationary processes with rational spectral density, to obtain a finite autoregressive representation for the common components. We construct an estimator for the model parameters and the common shocks. Consistency and rates of convergence are obtained. An empirical section, based on US macroeconomic time series, compares estimates based on our model with those based on the usual static representation restriction. We find convincing evidence that the latter is not supported by the data.

Pages: 64 pages
Date: 2011, Revised 2011-03
New Economics Papers: this item is included in nep-ets
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: One-Sided Representations of Generalized Dynamic Factor Models (2011)
Working Paper: One-Sided Representations of Generalized Dynamic Factor Models (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1106

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