This paper develops a method to analyze large cross-sections with non-trivial time dimension.The method (i) identifies the number of common shocks in a factor analytic model; (ii) estimates the unobserved common dynamic component; (iii) shows how to test for fundamentalness of the common shocks; (iv) quantifies negative and positive comovements at each frequency. We illustrate how the prposed techniques can be used for analyzing features of the business cycle and economic growth.
Dynamic Common Factors in Large Cross-Sections / Forni, Mario; Reichlin, L.. - In: EMPIRICAL ECONOMICS. - ISSN 0377-7332. - STAMPA. - 21:(1996), pp. 27-42.
Dynamic Common Factors in Large Cross-Sections
FORNI, Mario;
1996
Abstract
This paper develops a method to analyze large cross-sections with non-trivial time dimension.The method (i) identifies the number of common shocks in a factor analytic model; (ii) estimates the unobserved common dynamic component; (iii) shows how to test for fundamentalness of the common shocks; (iv) quantifies negative and positive comovements at each frequency. We illustrate how the prposed techniques can be used for analyzing features of the business cycle and economic growth.
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