Abstract
As a companion paper to Han and Kim (2019) on testing for block zero restrictions in common factors, this paper proposes a test of block zero restrictions in factor loadings, which have empirical relevance in various topics in economics. The test statistic is constructed using the principal component estimate of factor loadings and has a chi-square distribution asymptotically under the null hypothesis of block zero restrictions. The test is applied to a panel of 132 monthly U.S. macro economic time series, which are classified into three groups. The test results show a multi-level structure in factor loadings.
| Original language | English |
|---|---|
| Pages (from-to) | 100-112 |
| Number of pages | 13 |
| Journal | Journal of Economic Theory and Econometrics |
| Volume | 30 |
| Issue number | 3 |
| Publication status | Published - 2019 Sept |
Keywords
- Factor models
- Hierarchical factors
- Multi-level factors
ASJC Scopus subject areas
- Economics and Econometrics