A geometric approach to factor model identification

Sylvia Kaufmann and Markus Pape ()
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Markus Pape: Ruhr-University Bochum, https://www2.wiwi.rub.de/personen/dr-markus-pape/

No 24.06, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: We use the geometric representation of factor models to represent the factor loading structure by sets corresponding to unit-specific non-zero loadings. We formulate global and local identification conditions based on set conditions. We propose two algorithms to efficiently evaluate Sato (1992)’s counting rule. We demonstrate the efficiency and the performance of the algorithms with a simulation study. An application to exchange rate returns illustrates the approach.

Pages: 27 pages
Date: 2024-11
New Economics Papers: this item is included in nep-ecm and nep-ets
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Working Paper: A geometric approach to factor model identification (2025)
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