Dynamic Factor Models - Princeton University

Dynamic Factor Models January 2010 This revision: May 7, 2010 James H. Stock Department of Economics, Harvard University and the National Bureau of Economic Research and Mark W. Watson* Woodrow Wilson School and Department of Economics, Princeton University and the National Bureau of Economic Research *Prepared for the Oxford Handbook of Economic Forecasting, Michael P. Clements and David F. Hendry (eds), Oxford University Press. We thank Jushan Bai and Serena Ng for helpful discussions and Ugo Troiano for research assistance. 11. Introduction Macroeconometricians face a peculiar data structure. On the one hand, the number of years for which there is reliable and relevant data is limited and cannot readily be increased other than by the passage of time.

May 07, 2010 · t –1 ′,…, f. t – p ′)′ denote an . r. 0, λ. 1,…, λ. p), where λ. i. is the . N. ×. q. matrix of coefficients on the . i. th. lag in λ(L). Similarly, let Φ(L) be the matrix consisting of 1’s, 0’s, and the elements of Ψ(L) such that the vector autoregression in (2) is rewritten in terms of . Ft. With this notation the DFM ...

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