Dynamic Common Factors in Large Cross-Sections

Mario Forni and Lucrezia Reichlin

Empirical Economics, 1996, vol. 21, issue 1, 27-42

Abstract: This paper develops a method to analyze large cross-sections with non-trivial time dimension. The method (i) identifies the number of common shocks in a factor analytic model; (ii) estimates the unobserved common dynamic component; (iii) shows how to test for fundamentalness of the common shocks; (iv) (iv) quantifies positive and negative comovements at each frequency. We illustrate how the proposed techniques can be used for analyzing features of the business cycle and economic growth.

Date: 1996
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Working Paper: Dynamic common factors in large cross-sections (1996)
Working Paper: Dynamic Common Factors in Large Cross-Sections (1995)
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