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.

May 07, 2010 · many related macroeconomic, financial, and sectoral variables. Thus macroeconometricians face data sets that have hundreds or even thousands of series, but the number of observations on each series is relatively short, for example 20 to 40 years of quarterly data. This chapter surveys work on a class of models, dynamic factor models (DFMs),

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