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dc.contributor.authorBreitung, Jörgen_US
dc.contributor.authorEickmeier, Sandraen_US
dc.date.accessioned2009-08-12T07:30:13Z-
dc.date.available2009-08-12T07:30:13Z-
dc.date.issued2009en_US
dc.identifier.urihttp://hdl.handle.net/10419/27659-
dc.description.abstractFrom time to time, economies undergo far-reaching structural changes. In this paper we investigate the consequences of structural breaks in the factor loadings for the specification and estimation of factor models based on principal components and suggest test procedures for structural breaks. It is shown that structural breaks severely inflate the number of factors identified by the usual information criteria. Based on the strict factor model the hypothesis of a structural break is tested by using Likelihood-Ratio, Lagrange-Multiplier and Wald statistics. The LM test which is shown to perform best in our Monte Carlo simulations, is generalized to factor models where the common factors and idiosyncratic components are serially correlated. We also apply the suggested test procedure to a US dataset used in Stock and Watson (2005) and a euro-area dataset described in Altissimo et al. (2007). We find evidence that the beginning of the so-called Great Moderation in the US as well as the Maastricht treaty and the handover of monetary policy from the European national central banks to the ECB coincide with structural breaks in the factor loadings. Ignoring these breaks may yield misleading results if the empirical analysis focuses on the interpretation of common factors or on the transmission of common shocks to the variables of interest.en_US
dc.language.isoengen_US
dc.relation.ispartofseriesDiscussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2009,05en_US
dc.subject.jelC3en_US
dc.subject.jelC12en_US
dc.subject.jelC01en_US
dc.subject.ddc330en_US
dc.subject.keywordDynamic factor modelsen_US
dc.subject.keywordstructural breaksen_US
dc.subject.keywordnumber of factorsen_US
dc.subject.keywordGreat Moderationen_US
dc.subject.keywordEMUen_US
dc.subject.stwFaktorenanalyseen_US
dc.subject.stwHauptkomponentenanalyseen_US
dc.subject.stwStrukturbruchen_US
dc.subject.stwStatistischer Testen_US
dc.subject.stwTheorieen_US
dc.subject.stwSchätzungen_US
dc.subject.stwUSAen_US
dc.subject.stwEU-Staatenen_US
dc.titleTesting for structural breaks in dynamic factor modelsen_US
dc.typeWorking Paperen_US
dc.identifier.ppn59432873Xen_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
dc.identifier.repecRePEc:zbw:bubdp1:7574-
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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