Abstract

BOLIVAR, Stevenson; NIETO, Fabio H  and  PENA, Daniel. On a New Procedure for Identifying a Dynamic Common Factor Model. Rev.Colomb.Estad. [online]. 2021, vol.44, n.1, pp.1-21.  Epub Feb 24, 2021. ISSN 0120-1751.  https://doi.org/10.15446/rce.v44n1.84816.

In the context of the exact dynamic common factor model, canonical correlations in a multivariate time series are used to identify the number of latent common factors. In this paper, we establish a relationship between canonical correlations and the autocovariance function of the factor process, in order to modify a pre-established statistical test to detect the number of common factors. In particular, the test power is increased. Additionally, we propose a procedure to identify a vector ARMA model for the factor process, which is based on the so-called simple and partial canonical autocorrelation functions. We illustrate the proposed methodology by means of some simulated examples and a real data application.

Keywords : Canonical correlations; Dynamic common factors; Multivariate time series.

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