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Opening the Black Box: Structural Factor Models with Large Cross-Sections

Mario Forni (), Domenico Giannone (), Marco Lippi () and Lucrezia Reichlin ()

No 2008_036, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: This paper shows how large-dimensional dynamic factor models are suitable for structural analysis. We argue that all identification schemes employed in SVAR analysis can be easily adapted in dynamic factor models. Moreover, the “problem of fundamentalness”, which is intractable in structural VARs, can be solved, provided that the impulse-response functions are sufficiently heterogeneous. We provide consistent estimators for the impulse-response functions, as well as (n, T) rates of convergence. An exercise with US macroeconomic data shows that our solution of the fundamentalness problem may have important empirical consequences.

Keywords: Dynamic factor models; structural VARs; identification; fundamentalness (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cba, nep-ecm, nep-ets and nep-mac
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Journal Article: OPENING THE BLACK BOX: STRUCTURAL FACTOR MODELS WITH LARGE CROSS SECTIONS (2009) Downloads
Working Paper: Opening the black box: structural factor models with large cross-sections (2007) Downloads
Working Paper: Opening the Black Box: Structural Factor Models with Large Cross-Sections (2007) Downloads
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