Dynamic Factor Models with Jagged Edge Panel Data: Taking on Board the Dynamics of the Idiosyncratic Components
Oxford Bulletin of Economics and StatisticsPublished 21 December 2012Open access
Maximiano Pinheiro, António Rua, Francisco Dias
Citations13
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TL;DR
It is found that taking on board the dynamics of the idiosyncratic components improves significantly the accuracy of the estimation of both the missing values and the common factors at the end of the sample period.
Abstract
Abstract As macroeconomic data are released with different delays, one has to handle unbalanced panel data sets with missing values at the end of the sample period when estimating dynamic factor models. We propose an EM algorithm which copes with such data sets while accounting for autoregressive common factors and allowing for serial correlation in the idiosyncratic components. Based on Monte Carlo simulations, we find that taking on board the dynamics of the idiosyncratic components improves significantly the accuracy of the estimation of both the missing values and the common factors at the end of the sample period.
Keywords
Economics, Econometrics and Finance
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