Behavioural Approximation of Stochastic Processes by Rank Reduced Spectra

Christiaan Heij and Wolfgang Scherrer ()

No EI 9610/A, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Behaviours provide an elegant, parameter free characterization of deterministic systems. We discuss a possible application of behaviours in the approximation of stochastic systems. This can be seen as an extension to the dynamic case of the well-known static factor analysis model. An essential difference is that we see modelling primarily as a matter of process approximation, not as a method to recover the true data generating process. In particular we see "noise properties" as a kind of prior model assumption that can be compared with the resulting quality of the process approximation.

Keywords: behaviours; factor analysis; least squares; lineair systems; stationary processes (search for similar items in EconPapers)
Date: 1996-01-01
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