The Role of Search Frictions and Bargaining for Inflation Dynamics

Massimiliano Marcellino and George Kapetanios

No 305, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: The estimation of dynamic factor models for large sets of variables has attracted considerable attention recently, due to the increased availability of large datasets. In this paper we propose a new parametric methodology for estimating factors from large datasets based on state space models and discuss its theoretical properties. In particular, we show that it is possible to estimate consistently the factor space. We alsodevelop a consistent information criterion for the determination of the number of factors to be included in the model. Finally, we conduct a set of simulation experiments that show that our approach compares well with existing alternatives.

Date: 2006
New Economics Papers: this item is included in nep-cba and nep-mac
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