COINTEGRATION AND COMMON FACTORS

Álvaro Escribano · Daniel Peña

67 citations0/0 files storedJournal of Time Series Analysis

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Monetary Policy and Economic Impact Financial Risk and Volatility Modeling Statistical and numerical algorithms

Abstract

Abstract. Alternative common factor representations for cointegrated vectors are studied. This is done by embedding them into the dynamic factor model proposed by Peña and Box (Identifying a simplifying structure in time series. J. Am. Statist. Assoc. 82 (1987), 836–43). It is shown that dynamic factor models produce as a particular case the alternative common trend representations for cointegrated variables available in the literature. Furthermore a new normalization is proposed which has the advantage of producing common trend representations with moving‐average polynomials and under certain circumstances with uncorrelated shocks.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1977Time Series Analysis: Forecasting and Control 1991Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models 1977Time Series Analysis: Forecasting and Control 1986DEVELOPMENTS IN THE STUDY OF COINTEGRATED ECONOMIC VARIABLES 1981Some properties of time series data and their use in econometric model specification 1981A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the ‘business cycle’1988Testing for Common Trends

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