On the Existence of One-Sided Representations for the Generalised Dynamic Factor Model

TL;DR

This paper demonstrates that the common component in the Generalised Dynamic Factor Model can be represented using only current and past data, provided it is purely non-deterministic, simplifying analysis of such models.

Contribution

It establishes conditions under which the GDFM's common component admits a one-sided representation based solely on past observations.

Findings

The common component is representable with current and past data when purely non-deterministic.

Provides theoretical conditions for one-sided representations in GDFM.

Simplifies analysis and estimation of GDFM components.

Abstract

We show that the common component of the Generalised Dynamic Factor Model (GDFM) can be represented using only current and past observations basically whenever it is purely non-deterministic.