A Distributed Lag Approach to the Generalised Dynamic Factor Model (opens in new tab)

arXiv:2410.20885v2 Announce Type: replace-cross Abstract: We propose a new estimator for the Generalised Dynamic Factor Model (GDFM) that simplifies estimation by avoiding frequency-domain methods. Our key theoretical insight shows that under reasonable conditions the dynamic common component can be represented in terms of a finite number of lags of contemporaneously pervasive factors. In this case the dynamic factor decomposition of the GDFM reduces to the OLS regression of observed variable...