Estimation and inference of dynamic structural factor models with over-identifying restrictions

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

1 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)125-147
Journal / PublicationJournal of Econometrics
Volume202
Issue number2
Online published7 Oct 2017
Publication statusPublished - Feb 2018

Abstract

This paper develops a new estimator for the impulse response functions in structural factor models with a fixed number of over-identifying restrictions. The proposed identification scheme nests the conventional just-identified recursive scheme as a special case. We establish the asymptotic distributions of the new estimator and develop test statistics for the over-identifying restrictions. Simulation results show that adding a few more over-identifying restrictions can lead to a substantial improvement in estimation accuracy for impulse response functions at both zero and nonzero horizons. We estimate the effects of a monetary policy shock using a U.S. data set. The results show that our over-identified scheme can help to detect incorrect specifications that lead to spurious impulse responses.

Research Area(s)

  • High-dimensional factor models, Identification and estimation, Structural impulse responses