Detecting big structural breaks in large factor models

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dc.contributor.author Chen, Liang
dc.contributor.author Dolado, Juan José
dc.contributor.author Gonzalo, Jesús
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned 2012-04-10T15:30:30Z
dc.date.available 2012-04-10T15:30:30Z
dc.date.issued 2011-12
dc.identifier.issn 2340-5031
dc.identifier.uri http://hdl.handle.net/10016/14000
dc.description.abstract Time invariance of factor loadings is a standard assumption in the analysis of large factor models. Yet, this assumption may be restrictive unless parameter shifts are mild (i.e., local to zero). In this paper we develop a new testing procedure to detect big breaks in these loadings at either known or unknown dates. It relies upon testing for parameter breaks in a regression of the first of the r¯ factors estimated by PCA on the remaining r¯ − 1 factors, where r¯ is chosen according to Bai and Ng’s (2002) information criteria. The test fares well in terms of power relative to other recently proposed tests on this issue, and can be easily implemented to avoid forecasting failures in standard factor-augmented (FAR, FAVAR) models where the number of factors is a priori imposed on the basis of theoretical considerations.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M Working papers. Economics
dc.relation.ispartofseries 11-41
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Structural break
dc.subject.other Large factor model
dc.subject.other Loadings
dc.subject.other Principal components
dc.title Detecting big structural breaks in large factor models
dc.type workingPaper
dc.subject.jel C12
dc.subject.jel C33
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
dc.type.version submitedVersion
dc.identifier.uxxi DT/0000000880
dc.identifier.repec we1141
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