Principal Component Analysis for a Mix of Stationary and Nonstationary Variables

James Hamilton, Xinwei Ma and Jin Xi

No 32068, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a procedure for uncovering the common cyclical factors that drive a mix of stationary and nonstationary variables. The method does not require knowing which variables are nonstationary or the nature of the nonstationarity. An application to the FREDMD macroeconomic dataset demonstrates that the approach offers similar benefits to those of traditional principal component analysis with some added advantages.

JEL-codes: C55 E30 (search for similar items in EconPapers)
Date: 2024-01
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