Consistent estimation of the number of dynamic factors in a large N and T panel

Dante Amengual, Mark W. Watson

Research output: Contribution to journalArticle

101 Scopus citations

Abstract

Bai and Ng proposed a consistent estimator for the number of static factors in a large N and T approximate factor model. This article shows how the Bai-Ng estimator can be modified to consistently estimate the number of dynamic factors in a restricted dynamic factor model. The modification is straightforward: The standard Bai-Ng estimator is applied to residuals obtained by projecting the observed data onto lagged values of principal-components estimates of the static factors.

Original languageEnglish (US)
Pages (from-to)91-96
Number of pages6
JournalJournal of Business and Economic Statistics
Volume25
Issue number1
DOIs
StatePublished - Jan 1 2007

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Keywords

  • Approximate factor model
  • Bai-Ng estimator
  • Dynamic factor model

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