Work

Implications of Dynamic Factor Models for VAR Analysis

Year: 2005

Type: report

Abstract: This paper considers VAR models incorporating many time series that interact through a few dynamic factors.Several econometric issues are addressed including estimation of the number of dynamic factors and tests for the factor restrictions imposed on the VAR.Structural VAR identification based on timing restrictions, long run restrictions, and restrictions on factor loadings are discussed and practical computational methods suggested.Empirical analysis using U.S. data suggest several (7) dynamic factors, rejection of the exact dynamic factor model but support for an approximate factor model, and sensible results for a SVAR that identifies money policy shocks using timing restrictions.

Source: National Bureau of Economic Research

DOI: 10.3386/w11467

Authors: James Stock, Mark Watson

Institutions: National Bureau of Economic Research, Harvard University, Princeton University

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2152481464

Cites: 47

Cited by: 854

Related to: 10