Determining the Number of Factors and Lag Order in Dynamic Factor Models: A Minimum Entropy Approach

This article proposes a solution to one of the issues in the rapidly growing literature on dynamic factor models, i.e., how to determine the optimal number of factors. Our formal test, based upon the canonical correlation procedure related to concepts from information theory, produces estimates of the number of factors and the lag order simultaneously. Simulation experiments illustrate the potential of our approach.

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Year of publication:	2008
Authors:	Jacobs, Jan ; Otter, Pieter
Published in:	Econometric Reviews. - Taylor & Francis Journals, ISSN 0747-4938. - Vol. 27.2008, 4-6, p. 385-397
Publisher:	Taylor & Francis Journals
Subject:	Canonical correlation \| Factor analysis \| Model selection

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10005476145