A Quasi Maximum Likelihood Approach for Large, Approximate Dynamic Factor Models

Catherine Doz (), Domenico Giannone and Lucrezia Reichlin
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Catherine Doz: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, 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

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: Is maximum likelihood suitable for factor models in large cross-sections of time series? We answer this question from both an asymptotic and an empirical perspective. We show that estimates of the common factors based on maximum likelihood are consistent for the size of the cross-section (n) and the sample size (T) going to in¯nity along any path and that maximum likelihood is viable for n large. The estimator is robust to misspecification of cross-sectional and time series correlation of the idiosyncratic components. In practice, the estimator can be easily implemented using the Kalman smoother and the EM algorithm as in traditional factor analysis.

Keywords: Time Series; Misspecification; Factor Analysis (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (266)

Published in Review of Economics and Statistics, 2012, 94 (4), pp.1014-1024. ⟨10.1162/REST_a_00225⟩

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Related works:
Journal Article: A Quasi–Maximum Likelihood Approach for Large, Approximate Dynamic Factor Models (2012)
Working Paper: A Quasi Maximum Likelihood Approach for Large, Approximate Dynamic Factor Models (2012)
Working Paper: A Quasi Maximum Likelihood Approach for Large, Approximate Dynamic Factor Models (2012)
Working Paper: A Quasi Maximum Likelihood Approach for Large Approximate Dynamic Factor Models (2008)
Working Paper: A Quasi Maximum Likelihood Approach for Large Approximate Dynamic Factor Models (2006)
Working Paper: A quasi maximum likelihood approach for large approximate dynamic factor models (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-00638440

DOI: 10.1162/REST_a_00225

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