Identification of the Linear Factor Model
Benjamin Williams ()
No 2018-002, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting
This paper provides several new results on identification of the linear factor model. The model allows for correlated latent factors and dependence among the idiosyncratic errors. I also illustrate identification under a dedicated measurement structure and other reduced rank restrictions. I use these results to study identification in a model with both observed covariates and latent factors. The analysis emphasizes the different roles played by restrictions on the error covariance matrix, restrictions on the factor loadings and the factor covariance matrix, and restrictions on the coefficients on covariates. The identification results are simple, intuitive, and directly applicable to many settings.
Keywords: Latent variables; factor analysis (search for similar items in EconPapers)
JEL-codes: C31 C36 C38 (search for similar items in EconPapers)
Pages: 34 pages
New Economics Papers: this item is included in nep-ecm
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Persistent link: https://EconPapers.repec.org/RePEc:gwc:wpaper:2018-002
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