skip to content

Faculty of Economics

Journal Cover

Chudik, A. and Pesaran, M.H.

Infinite-dimensional VARs and factor models

Journal of Econometrics

Abstract: This paper proposes a novel approach for dealing with the ‘curse of dimensionality’ in the case of infinite-dimensional vector autoregressive (IVAR) models. It is assumed that each unit or variable in the IVAR is related to a small number of neighbors and a large number of non-neighbors. The neighborhood effects are fixed and do not change with the number of units (N), but the coefficients of non-neighboring units are restricted to vanish in the limit as N tends to infinity. Problems of estimation and inference in a stationary IVAR model with an unknown number of unobserved common factors are investigated. A cross-section augmented least-squares (CALS) estimator is proposed and its asymptotic distribution is derived. Satisfactory small-sample properties are documented by Monte Carlo experiments. An empirical illustration shows the statistical significance of dynamic spillover effects in modeling of US real house prices across the neighboring states.

JEL Codes: C10, C33, C51

Author links: M. Hashem Pesaran  

Publisher's Link: http://www.sciencedirect.com/science/article/pii/S030440761000206X



Papers and Publications



Recent Publications


Carvalho, V. M. and Grassi, B. Large Firm Dynamics and the Business Cycle American Economic Review [2019]

Fruehwirth, J., Iyer, S. and Zhang, A. Religion and Depression in Adolescence Journal of Political Economy, forthcoming [2019]

Elliott, M. and Golub, B. A network approach to public goods accepted, Journal of Political Economy [2018]