This paper develops a method for analysing the dynamics of large cross-sections based on a factor analytic model. The authors use 'law of large numbers' arguments to show that the number of common factors can be determined by a principal components method, the economy-wide shocks can be...

In this Paper we study identification in dynamic factor models and argue that factor models are better suited than VARs to provide a structural representation of the macroeconomy. Factor models distinguish measurement errors and other idiosyncratic disturbances from structural macroeconomic...

This paper proposes a new way to compute a coincident and a leading index of economic activity. The method provides a unified approach for the selection of the coincident and the leading variables, for averaging them into coincident and leading indexes and for the identification of turning...

This paper develops a method to analyse large cross-sections with non-trivial time dimensions. The method: (i) identifies the number of common shocks in a factor analytic model; (ii) estimates the unobserved common dynamic component; (iii) shows how to test for fundamentality of the common...