Information, Data Dimension, and Factor Structure

DNB Working Paper No. 150

27 Pages Posted: 26 Jan 2011

See all articles by Ard den Reijer

Ard den Reijer

Sveriges Riksbank - Monetary Policy

Jan P. A. M. Jacobs

University of Groningen - Faculty of Economics and Business

Pieter Otter

University of Groningen

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2007

Abstract

This paper employs concepts from information to choosing the dimension of a data set. We calculate relative measures of information in the data in terms of eigenvalues and derive criteria to determine the ‘optimal’ size of the data set, in particular whether an extra variable adds information. The methods can be used as a first step in the construction of a dynamic factor model or a leading index, as illustrated with a macroeconomic data set on The Netherlands.

Keywords: Kullback-Leibler Numbers, Factor Structure, Leading Index

JEL Classification: C32, C52, C82

Suggested Citation

den Reijer, Ard and Jacobs, Jan P.A.M. and Otter, Pieter, Information, Data Dimension, and Factor Structure (January 1, 2007). DNB Working Paper No. 150. Available at SSRN: https://ssrn.com/abstract=1748106 or http://dx.doi.org/10.2139/ssrn.1748106

Ard den Reijer (Contact Author)

Sveriges Riksbank - Monetary Policy ( email )

SE-103 37 Stockholm
Sweden

Jan P.A.M. Jacobs

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Pieter Otter

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

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