Common factors in conditional distributions for Bivariate time series

Timo Teräsvirta, Clive Granger and Andrew Patton

FMG Discussion Papers from Financial Markets Group

Abstract: A definition for a common factor for bivariate time series is suggested by considering the decomposition of the conditional density into the product of the marginals and the copula, with the conditioning variable being a common factor if it does not directly enter the copula. The links of this definition with a common factor being a dominant feature in standard linear representations is shown. An application using a business cycle indicator as the common factor in the relationship between U.S. income and consumption found that both series held the factor in their marginals but not in the copula.

Date: 2003-06
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Related works:
Journal Article: Common factors in conditional distributions for bivariate time series (2006)
Working Paper: Common factors in conditional distributions for Bivariate time series (2003)
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