This paper proposes two consistent model selection procedures for factor-augmented regressions in finite samples. We first demonstrate that the usual cross-validation is inconsistent, but that a generalization, leave-d-out cross-validation, selects the smallest basis for the space spanned by the...

This paper investigates the finite sample properties of the two-step estimators of dynamic factor models when unobservable common factors are estimated by the principal components methods in the first step. Effects of the number of individual series on the estimation of an auto-regressive model...