Dynamic factor model

DFMs are VARs that operate over unobserved factors rather than observed variables. The unobserved factors are derived via PCA. Idiosyncratic deviations from the common component are modeled via autoregressive models.

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References

@stockDynamicFactorModels2016

@kirkerWhatDrivesCore

ATSA19 Lecture 8: Introduction to Dynamic Factor Analysis

Metran

Large dynamic factor models, forecasting, and nowcasting

Dynamic Factor Analysis

eonline