Motivated by the great moderation in major U.S. macroeconomic time series, we formulate the regime switching problem through a conditional Markov chain. We model the long-run volatility change as a recurrent structure change, while short-run changes in the mean growth rate as regime switches....

High dimensional factor models can involve thousands of parameters. The Jacobian matrix for identification is of a large dimension. It can be difficult and numerically inaccurate to evaluate the rank of such a Jacobian matrix. We reduce the identification problem to a small rank problem, which...

Large factor models use a few latent factors to characterize the co-movement of economic variables in a high-dimensional data set. High dimensionality brings challenges as well as new insights into the advancement of econometric theory. Because of their ability to effectively summarize...

We propose a simple and intuitive method for estimating betas when factors are measured with error: ordinary least squares instrumental variable estimator (OLIVE). OLIVE performs well when the number of instruments becomes large, while the performance of conventional instrumental variable...