Common Factors in Conditional Distributions for Bivariate Time Series

UCSD Economics Working Paper No. 2002-19

21 Pages Posted: 6 Mar 2004

See all articles by Clive W. J. Granger

Clive W. J. Granger

University of California, San Diego (UCSD) - Department of Economics; Tinbergen Institute

Timo Teräsvirta

Stockholm School of Economics - Department of Economics

Andrew J. Patton

Duke University - Department of Economics

Date Written: November 2003

Abstract

A definition for a common factor for bivariate time series is suggested by considering the decomposition of the conditional density into the product of the marginals and the copula, with the conditioning variable being a common factor if it does not directly enter the copula. We show the links between this definition and the idea of a common factor as a dominant feature in standard linear representations. An application using a business cycle indicator as the common factor in the relationship between U.S. income and consumption found that both series held the factor in their marginals but not in the copula.

Keywords: Common factors, copulas, business cycles

JEL Classification: C32, C53

Suggested Citation

Granger, Clive W. J. and Teräsvirta, Timo and Patton, Andrew J., Common Factors in Conditional Distributions for Bivariate Time Series (November 2003). UCSD Economics Working Paper No. 2002-19, Available at SSRN: https://ssrn.com/abstract=513023 or http://dx.doi.org/10.2139/ssrn.513023

Clive W. J. Granger (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-3383 (Phone)
858-534-7040 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
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Netherlands

Timo Teräsvirta

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

Andrew J. Patton

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

HOME PAGE: http://econ.duke.edu/~ap172/

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