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Title:Diffusion index models and index proxies: Recent results and new directions PDF Logo
Authors:Armah, Nii Ayi
Swanson, Norman
Issue Date:2011
Series/Report no.:Working Papers, Department of Economics, Rutgers, the State University of New Jersey 2011,14
Abstract:Diffusion index models have received considerable attention from both theoreticians and empirical econometricians in recent years. One reason for this is that datasets with many variables are increasingly becoming available and being utilized for economic modelling, and another is that common factors are often assumed to underlie the co-movements of a set of macroeconomic variables. In this paper we review some recent results in the study of diffusion index models, focusing primarily on advances due to [4, 5] and [1]. We discuss, for example, the construction of factors used in prediction models implemented using diffusion index methodology and approaches that are useful for assessing whether there are observable variables that adequately proxy for estimated factors.
Subjects:diffusion index
parameter estimation error
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, Rutgers University

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