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Faculty of Economics

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Onatski, A. and Ruge-Murcia, F.

Factor analysis of a large dsge model

Journal of Applied Econometrics

Vol. 28(6) no. 6 pp. 903-928 (2013)

Abstract: We study the workings of the factor analysis of high-dimensional data using artificial series generated from a large, multi-sector dynamic stochastic general equilibrium (DSGE) model. The objective is to use the DSGE model as a laboratory that allows us to shed some light on the practical benefits and limitations of using factor analysis techniques on economic data. We explain in what sense the artificial data can be thought of having a factor structure, study the theoretical properties of the principal components estimates of the factor space, investigate the substantive reason(s) for the good performance of diffusion index forecasts, and assess the quality of the factor analysis of highly disaggregated data. In all our exercises, we explain the precise relationship between the factors and the basic macroeconomic shocks postulated by the model.

Author links: Alexey Onatskiy  

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Papers and Publications

Recent Publications

Bhattacharya, D. The Empirical Content of Binary Choice Models Econometrica [2020]

Onatski, A. and Wang, C. Spurious Factor Analysis Econometrica, forthcoming [2020]

Agranov, M. and Elliott, M. Commitment and (in) Efficiency: A Bargaining Experiment Journal of the European Economic Association [2020]

Giannitsarou, C., Kissler, S. and Toxvaerd, F. Waning Immunity and the Second Wave: Some Projections for SARS-CoV-2 American Economic Review: Insights, forthcoming [2021]