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Working Paper
Latent Variables Analysis in Structural Models: A New Decomposition of the Kalman Smoother
This paper advocates chaining the decomposition of shocks into contributions from forecast errors to the shock decomposition of the latent vector to better understand model inference about latent variables. Such a double decomposition allows us to gauge the inuence of data on latent variables, like the data decomposition. However, by taking into account the transmission mechanisms of each type of shock, we can highlight the economic structure underlying the relationship between the data and the latent variables. We demonstrate the usefulness of this approach by detailing the role of ...
Working Paper
Quasi Maximum Likelihood Estimation and Inference of Large Approximate Dynamic Factor Models via the EM algorithm
We study estimation of large Dynamic Factor models implemented through the Expectation Maximization (EM) algorithm, jointly with the Kalman smoother. We prove that as both n and T diverge to infinity: (i) the estimated loadings are sqrt{T}-consistent and asymptotically normal and equivalent to their Quasi Maximum Likelihood estimates; (ii) the estimated factors are sqrt{n}-consistent and asymptotically normal and equivalent to their Weighted Least Squares estimates. Moreover, the estimated loadings are asymptotically as efficient as those obtained by Principal Components analysis, while ...
Working Paper
Common Factors, Trends, and Cycles in Large Datasets
This paper considers a non-stationary dynamic factor model for large datasets to disentangle long-run from short-run co-movements. We first propose a new Quasi Maximum Likelihood estimator of the model based on the Kalman Smoother and the Expectation Maximisation algorithm. The asymptotic properties of the estimator are discussed. Then, we show how to separate trends and cycles in the factors by mean of eigenanalysis of the estimated non-stationary factors. Finally, we employ our methodology on a panel of US quarterly macroeconomic indicators to estimate aggregate real output, or Gross ...