A two-step estimator for large approximate dynamic factor models based on Kalman filtering

Catherine Doz (), Domenico Giannone and Lucrezia Reichlin
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Catherine Doz: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper shows consistency of a two step estimation of the factors in a dynamic approximate factor model when the panel of time series is large (n large). In the first step, the parameters of the model are estimated from an OLS on principal components. In the second step, the factors are estimated via the Kalman smoother. The analysis develops the theory for the estimator considered in Giannone, Reichlin, and Sala (2004) and Giannone, Reichlin, and Small (2008) and for the many empirical papers using this framework for nowcasting.

Keywords: Factor Models; Kalman Filter; Principal Components; Large Cross-sections (search for similar items in EconPapers)
Date: 2011-09-01
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Citations: View citations in EconPapers (309)

Published in Econometrics, 2011, 164 (1), pp.188-205

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Related works:
Journal Article: A two-step estimator for large approximate dynamic factor models based on Kalman filtering (2011)
Working Paper: A two-step estimator for large approximate dynamic factor models based on Kalman filtering (2011)
Working Paper: A two-step estimator for large approximate dynamic factor models based on Kalman filtering (2011)
Working Paper: A two-step estimator for large approximate dynamic factor models based on Kalman filtering (2011)
Working Paper: A Two-Step Estimator for Large Approximate Dynamic Factor Models Based on Kalman Filtering (2007)
Working Paper: A Two-step estimator for large approximate dynamic factor models based on Kalman filtering (2006)
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