Dynamic Factor Models: A Review of the Literature

54 Pages Posted: 11 Jul 2013

See all articles by Karim Barhoumi

Karim Barhoumi

International Monetary Fund (IMF)

Olivier Darné

University of Nantes - Faculty of Business and Economics

Laurent Ferrara

SKEMA Business School; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA); Université Paris Ouest - Nanterre, La Défense - EconomiX

Date Written: July 9, 2013

Abstract

La version française de cet article peut être consultée à: http://ssrn.com/abstract=2243625

For few years, the increasing size of available economic and financial databases has led econometricians to develop and adapt new methods in order to efficiently summarize information contained in those large datasets. Among those methods, dynamic factor models have known a rapid development and a large success among macroeconomists. In this paper, we carry out a review of the recent literature on dynamic factor models. First we present the models used, then the parameter estimation methods and finally the statistical tests available to choose the number of factors. In the last section, we focus on recent empirical applications, especially dealing with the building of economic outlook indicators, macroeconomic forecasting and macroeconomic and monetary policy analyses.

Keywords: dynamic factor models, estimation, tests for the number of factors, macroeconomic applications

JEL Classification: C13, C51, C32, E66, F44

Suggested Citation

Barhoumi, Karim and Darné, Olivier and Ferrara, Laurent, Dynamic Factor Models: A Review of the Literature (July 9, 2013). Available at SSRN: https://ssrn.com/abstract=2291459 or http://dx.doi.org/10.2139/ssrn.2291459

Karim Barhoumi

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Olivier Darné

University of Nantes - Faculty of Business and Economics ( email )

Nantes
France

Laurent Ferrara (Contact Author)

SKEMA Business School ( email )

Paris la Défense, 92916
France

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
92000

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