Consistent factor estimation in dynamic factor models with structural instability
Brandon J. Bates,
Mikkel Plagborg-Moller,
James H. Stock and
Mark Watson
Journal of Econometrics, 2013, vol. 177, issue 2, 289-304
Abstract:
This paper considers the estimation of approximate dynamic factor models when there is temporal instability in the factor loadings. We characterize the type and magnitude of instabilities under which the principal components estimator of the factors is consistent and find that these instabilities can be larger than earlier theoretical calculations suggest. We also discuss implications of our results for the robustness of regressions based on the estimated factors and of estimates of the number of factors in the presence of parameter instability. Simulations calibrated to an empirical application indicate that instability in the factor loadings has a limited impact on estimation of the factor space and diffusion index forecasting, whereas estimation of the number of factors is more substantially affected.
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (94)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304407613000912
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Consistent Factor Estimation in Dynamic Factor Models with Structural Instability (2013) 
Working Paper: Consistent factor estimation in dynamic factor models with structural instability 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:177:y:2013:i:2:p:289-304
DOI: 10.1016/j.jeconom.2013.04.014
Access Statistics for this article
Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson
More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().