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Enrique Sentana, CEMFI Print
Thursday, 07 February 2013, 12:15 - 13:15

Enrique Sentana, CEMFI

Dynamic Specification Tests for Dynamic Factor Models


We derive computationally simple and intuitive expressions for score tests of neglected serial correlation in common and idiosyncratic factors in dynamic factor models using frequency domain methods. The implicit orthogonality conditions are analogous to the frequency domain scores obtained if we treated the Wiener-Kolmogorov-Kalman smoothed estimators of common and idiosyncratic factors as if they were observed, although they take into account the difference between the true underlying factors and their estimators. Our Monte Carlo exercises assess the finite sample reliability and power of our proposed tests.

Location: R42.2.113
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