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A Bayesian Generalized Factor Model with Comparative Analysis (Genellestirilmis Faktor Modellerinin Bayesyen Yaklasimi ve Karsilastirmali Analizi)

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  • Necati Tekatli

Abstract

This paper has two major objectives. First, we develop and implement a Bayesian generalized factor model that allows for non-orthogonality of the idiosyncratic factors and the flexibility of cross-sectional and time series dimensions. Second, we evaluate the significance of the orthogonality assumption in factor models, a controversial assumption discussed in the recent literature. To this end, we propose a simple methodology to choose the generalized factor model that best determines the idiosyncratic correlations and provide a comparative analysis between the classical and generalized factor models. The proposed methodology is applied to both the simulated data and the foreign exchange rate data.

Suggested Citation

  • Necati Tekatli, 2010. "A Bayesian Generalized Factor Model with Comparative Analysis (Genellestirilmis Faktor Modellerinin Bayesyen Yaklasimi ve Karsilastirmali Analizi)," Working Papers 1018, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1018
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Factor model; Bayesian time series; MCMC simulation; Model selection.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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