Permanent-Transitory decomposition of cointegrated time series via Dynamic Factor Models, with an application to commodity prices
Chiara Casoli, Riccardo (Jack) Lucchetti
In this article, we propose a cointegration-based Permanent-Transitory decomposition for nonstationary Dynamic Factor Models. Our methodology exploits the cointegration relations among the observable variables and assumes they are driven by a common and an idiosyncratic component. The common component is further split into a long-term non-stationary part and a short-term stationary one. A Monte Carlo experiment shows that taking into account the cointegration structure in the DFM leads to a much better reconstruction of the space spanned by the factors, with respect to the most standard technique of applying a factor model in differenced systems. Finally, an application of our procedure to a set of different commodity prices allows to analyse the comovement among different markets. We find that commodity prices move together due to longterm common forces and that the trend for most primary good prices is declining, whereas metals and energy ones exhibit an upward or at least stable pattern since the 2000s.
Year of publication: |
July 2021
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Authors: | Casoli, Chiara ; Lucchetti, Riccardo |
Publisher: |
Milano, Italia : Fondazione Eni Enrico Mattei |
Subject: | Cointegration | Dynamic Factor Models | P-T decomposition | Commodity prices comovement | Theorie | Theory | Zeitreihenanalyse | Time series analysis | Schätzung | Estimation | Kointegration | Dekompositionsverfahren | Decomposition method | Rohstoffpreis | Commodity price | Faktorenanalyse | Factor analysis |
Saved in:
freely available
Extent: | 1 Online-Ressource (circa 35 Seiten) Illustrationen |
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Series: | Working paper. - Milan : [Verlag nicht ermittelbar], ZDB-ID 2217241-5. - Vol. 2021, 019 |
Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper |
Language: | English |
Other identifiers: | hdl:10419/237744 [Handle] |
Classification: | C32 - Time-Series Models ; c38 ; q02 |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012596987