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COINTEGRATION AND COMMON FACTORS
Author(s) -
Escribano Alvaro,
Peña Daniel
Publication year - 1994
Publication title -
journal of time series analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.576
H-Index - 54
eISSN - 1467-9892
pISSN - 0143-9782
DOI - 10.1111/j.1467-9892.1994.tb00213.x
Subject(s) - cointegration , mathematics , dynamic factor , normalization (sociology) , econometrics , embedding , factor analysis , uncorrelated , factor (programming language) , series (stratigraphy) , statistics , computer science , artificial intelligence , paleontology , sociology , anthropology , biology , programming language
. Alternative common factor representations for cointegrated vectors are studied. This is done by embedding them into the dynamic factor model proposed by Peña and Box (Identifying a simplifying structure in time series. J. Am. Statist. Assoc. 82 (1987), 836–43). It is shown that dynamic factor models produce as a particular case the alternative common trend representations for cointegrated variables available in the literature. Furthermore a new normalization is proposed which has the advantage of producing common trend representations with moving‐average polynomials and under certain circumstances with uncorrelated shocks.