Dynamic Factor Models
40 Pages Posted: 30 Nov 2005
There are 2 versions of this paper
Dynamic Factor Models
Dynamic Factor Models
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.
Keywords: Principal components, dynamic factors, forecasting
JEL Classification: C13, C33, C51
Suggested Citation: Suggested Citation
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