Common factors in conditional distributions

Clive W. J. Granger, Timo Teräsvirta () and Andrew Patton ()

No 515, Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: The concept of common factors has in the econometrics literature been applied to conditional means or in some cases to conditional variances. In this paper we generalize this concept to bivariate distributions. This is done using the conditional bivariate copula as the statistical tool. The definition of common factors in distributions is illustrated by an empirical application to the income-consumption relationship, using monthly US time series. Evidence is found to support the claim that the true relationship between these variables is independent of the phase of the business cycle. The indicator representing the business cycle is thus a common factor in distributions of the type defined and discussed in the paper.

Keywords: bivariate time series; business cycles; conditional distribution; consumption-income relationship; copula; multivariate time-series model (search for similar items in EconPapers)
JEL-codes: C32 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2002-11-20
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Published in Journal of Econometrics, 2006, pages 43-57.

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Working Paper: Common Factors in Conditional Distributions (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:hastef:0515

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