Motta, Giovanni; Hafner, Christian M.; von Sachs, Rainer - In: Econometric Theory 27 (2011) 06, pp. 1279-1319
In this paper we propose a new approximate factor model for large cross-section and time dimensions. Factor loadings are assumed to be smooth functions of time, which allows considering the model as <italic>locally stationary</italic> while permitting empirically observed time-varying second moments. Factor...