Gonzalo, JesúsGranger, C.W.J. (Clive William John)2008-10-162008-10-161995-01Journal of Business & Economic Statistics, January 1995, vol. 13, nº 1, p. 27-350735-0015https://hdl.handle.net/10016/744The analysis of cointegration in large systems requires a reduction of their dimensionality. To achieve this, an analysis proposes to obtain the integrated of order one - I(1) - factors in every subsystem and then analyze cointegration among them. A new way of estimating common long-memory components of a cointegrated system is proposed. The identification of these I(1) common factors is achieved by imposing that they be linear combinations of the original variables and that the error-correction terms do not cause the common factors at low frequencies. Estimation is done from a fully specified error-correction model, which makes it possible to test hypotheses on the common factors using standard chi-squared tests. Several empirical examples are presented to illustrate the procedure.application/pdftext/plainengCommon factorsCointegrationError-correction modelPermanent-transitory decompositionresearch articleEconomíaopen access