TY - JOUR
T1 - Testing the interpretation of indices in a macroeconomic index model
AU - Watson, Mark W.
AU - Kraft, Dennis F.
N1 - Funding Information:
*The tinancial support of the National Science Foundation (SES-K?-0X0!?) and the Hallard Graduate Society is gratefully acknowledged. We thank BenJamin Friedman. Robert King. C ?arle~ Plosser. an arvnymous referee, and the participants of seminars at Harvard and the Ilrubcrsil%o f Rochester for useful comments on an earlier draft.
PY - 1984/3
Y1 - 1984/3
N2 - This paper discusses and contrasts different approaches to the construction of dynamic models containing unobservables. It is argued that some analysis is easy to carry out using Dynamic Factor Analysis (DFA), a frequency domain technique, while other analysis is easier to carry out in the context of a Dynamic Multiple Indicator-Multiple Cause Model (DYMIMIC), a time domain technique. An example is presented in which six macroeconomic variables are found to be connected by two common factors using DFA. The interpretation of these factors as 'anticipated' and 'unanticipated' aggregate demand is then tested using the DYMIMIC model. This interpretation is strongly rejected.
AB - This paper discusses and contrasts different approaches to the construction of dynamic models containing unobservables. It is argued that some analysis is easy to carry out using Dynamic Factor Analysis (DFA), a frequency domain technique, while other analysis is easier to carry out in the context of a Dynamic Multiple Indicator-Multiple Cause Model (DYMIMIC), a time domain technique. An example is presented in which six macroeconomic variables are found to be connected by two common factors using DFA. The interpretation of these factors as 'anticipated' and 'unanticipated' aggregate demand is then tested using the DYMIMIC model. This interpretation is strongly rejected.
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U2 - 10.1016/0304-3932(84)90012-6
DO - 10.1016/0304-3932(84)90012-6
M3 - Article
AN - SCOPUS:0012124355
SN - 0304-3932
VL - 13
SP - 165
EP - 181
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 2
ER -