This paper shows how large-dimensional dynamic factor models are suitable for structural analysis. We argue that all identification schemes employed in SVAR analysis can be easily adapted in dynamic factor models. Moreover, the ``problem of fundamentalness'', which is intractable in structural VARs, can be solved, provided that the impulse-response functions are sufficiently heterogeneous. We provide consistent estimators for the impulse-response functions, as well as $(n,T)$ rates of convergence. An exercise with US macroeconomic data shows that our solution of the fundamentalness problem may have important empirical consequences.

Forni, Mario, D, Giannone e M. AND REICHLIN L., Lippi. "Opening the Black Box: Structural Factor Models with large cross-sections" Working paper, European Central Bank, 2007.

Opening the Black Box: Structural Factor Models with large cross-sections

FORNI, Mario;
2007

Abstract

This paper shows how large-dimensional dynamic factor models are suitable for structural analysis. We argue that all identification schemes employed in SVAR analysis can be easily adapted in dynamic factor models. Moreover, the ``problem of fundamentalness'', which is intractable in structural VARs, can be solved, provided that the impulse-response functions are sufficiently heterogeneous. We provide consistent estimators for the impulse-response functions, as well as $(n,T)$ rates of convergence. An exercise with US macroeconomic data shows that our solution of the fundamentalness problem may have important empirical consequences.
Dicembre
Forni, Mario; Giannone, D; Lippi, M. AND REICHLIN L.
Forni, Mario, D, Giannone e M. AND REICHLIN L., Lippi. "Opening the Black Box: Structural Factor Models with large cross-sections" Working paper, European Central Bank, 2007.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11380/420613
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