Multivariate modelling of long memory processes with common components

Authors:
Claudio Morana
Affiliations:
Faculty of Economics, Department of Economics and Quantitative Methods, University of Piemonte Orientale, Via Perrone 18, 28100 Novara, Italy and International Centre for Economic Research (ICER), ...
Venue:
Computational Statistics & Data Analysis
Year:
2007

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Abstract

A new approach to the modelling of common components in long memory processes is introduced. The approach is based on a two-step procedure relying on Fourier transform methods (first step) and principal components analysis (second step). Differently from other available methods, it allows the modelling of large data sets, both in terms of temporal and cross-sectional dimensions. Monte Carlo evidence, supporting the two-step estimation procedure, is also provided, as well as an empirical application to real data.