We consider the dynamic factor model where the loading matrix, the dynamic factors and the disturbances are treated as latent stochastic processes. We present empirical Bayes methods that enable the efficient shrinkage-based estimation of the loadings and the factors. We show that our estimates...

This paper investigates the dynamic properties of systematic default risk conditions for firms from different countries, industries, and rating groups. We use a high-dimensional nonlinear non-Gaussian state space model to estimate common components in corporate defaults in a 41 country sample...

We propose to pool alternative systemic risk rankings for financial institutions using the method of principal components. The resulting overall ranking is less affected by estimation uncertainty and model risk. We apply our methodology to disentangle the common signal and the idiosyncratic...