DMCA
2011): “Estimation of Common Factors under Cross-Sectional and Temporal Aggregation Constraints
| Venue: | International Statistical Review |
| Citations: | 14 - 1 self |
BibTeX
@ARTICLE{Proietti_2011):“estimation,
author = {Tommaso Proietti},
title = {2011): “Estimation of Common Factors under Cross-Sectional and Temporal Aggregation Constraints},
journal = {International Statistical Review},
year = {},
pages = {455--476}
}
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Abstract
The paper estimates a large-scale mixed-frequency dynamic factor model for the euro area, using monthly series along with Gross Domestic Product (GDP) and its main components, obtained from the quarterly national accounts. The latter define broad measures of real economic activity (such as GDP and its decomposition by expenditure type and by branch of activity) that we are willing to include in the factor model, in order to improve its coverage of the economy and thus the representativeness of the factors. The main problem with their inclusion is not one of model consistency, but rather of data availability and timeliness, as the national accounts series are quarterly and are available with a large publication lag. Our model is a traditional dynamic factor model formulated at the monthly frequency in terms of the stationary representation of the variables, which however becomes nonlinear when the observational constraints are taken into account. These are of two kinds: nonlinear temporal aggregation constraints, due to the fact that the model is formulated in terms of the unobserved monthly logarithmic changes, but we observe only the sum of the monthly levels within a quarter, and nonlinear cross-sectional constraints, since GDP and its main components are linked by the national accounts identities, but the series are expressed in chained volumes. The paper provides an exact treatment of the observational constraints
Keyphrases
temporal aggregation constraint common factor observational constraint main component data availability nonlinear temporal aggregation constraint expenditure type main problem nonlinear cross-sectional constraint model consistency euro area real economic activity gross domestic product large publication lag stationary representation latter define broad measure national account identity traditional dynamic factor model large-scale mixed-frequency dynamic factor model unobserved monthly logarithmic change factor model chained volume monthly level quarterly national account monthly frequency national account series exact treatment monthly series
