Author:
Forni Mario,Giannone Domenico,Lippi Marco,Reichlin Lucrezia
Abstract
This paper shows how large-dimensional dynamic factor models are suitable for structural analysis. We argue that all identification schemes employed in structural vector autoregression (SVAR) analysis can be easily adapted in dynamic factor models. Moreover, the “problem of fundamentalness,” which is intractable in SVARs, can be solved, provided that the impulse-response functions are sufficiently heterogeneous. We provide consistent estimators for the impulse-response functions and for (n,T) rates of convergence. An exercise with U.S. macroeconomic data shows that our solution of the fundamentalness problem may have important empirical consequences.
Publisher
Cambridge University Press (CUP)
Subject
Economics and Econometrics,Social Sciences (miscellaneous)
Reference40 articles.
1. Stock J.H. & Watson M.W. (2005). Implications of Dynamic Factor Models for VAR Analysis. NBER Working papers 11467.
2. Two Models of Measurements and the Investment Accelerator
3. VAR analysis, nonfundamental representations, blaschke matrices
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