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Cointegration And Common Factors

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  • Alvaro Escribano
  • Daniel Peña

Abstract

. Alternative common factor representations for cointegrated vectors are studied. This is done by embedding them into the dynamic factor model proposed by Peña and Box (Identifying a simplifying structure in time series. J. Am. Statist. Assoc. 82 (1987), 836–43). It is shown that dynamic factor models produce as a particular case the alternative common trend representations for cointegrated variables available in the literature. Furthermore a new normalization is proposed which has the advantage of producing common trend representations with moving‐average polynomials and under certain circumstances with uncorrelated shocks.

Suggested Citation

  • Alvaro Escribano & Daniel Peña, 1994. "Cointegration And Common Factors," Journal of Time Series Analysis, Wiley Blackwell, vol. 15(6), pages 577-586, November.
    • Handle: RePEc:bla:jtsera:v:15:y:1994:i:6:p:577-586
    DOI: 10.1111/j.1467-9892.1994.tb00213.x
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