Opening the black box: structural factor models with large cross-sections

Mario Forni, Domenico Giannone, Marco Lippi and Lucrezia Reichlin

No 712, Working Paper Series from European Central Bank

Abstract: This paper shows how large-dimensional dynamic factor models are suitable for structural analysis. We establish sufficient conditions for identification of the structural shocks and the associated impulse response functions. In particular, we argue that, if the data follow an approximate factor structure, the “problem of fundamentalness”, which is intractable in structural VARs, can be solved provided that the impulse responses are sufficiently heterogeneous. Finally, we propose a consistent method (and n, T rates of convergence) to estimate the impulse-response functions, as well as a bootstrapping procedure for statistical inference. JEL Classification: E0, C1

Keywords: dynamic factor models; fundamentalness; identification; structural VARs (search for similar items in EconPapers)
Date: 2007-01
Note: 93468
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70)

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Related works:
Journal Article: OPENING THE BLACK BOX: STRUCTURAL FACTOR MODELS WITH LARGE CROSS SECTIONS (2009)
Working Paper: Opening the Black Box: Structural Factor Models with Large Cross-Sections (2008)
Working Paper: Opening the Black Box: Structural Factor Models with Large Cross-Sections (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007712

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