Equivalent Dynamic Models

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Abstract

Equivalences of two classes of dynamic models for weakly stationary multivariate time series are discussed: dynamic factor models and autoregressive models. It is shown that exploratory dynamic factor models can be rotated, yielding an infinite set of equivalent solutions for any observed series. It also is shown that dynamic factor models with lagged factor loadings are not equivalent to the currently popular state-space models, and that restriction of attention to the latter type of models may yield invalid results. The known equivalent vector autoregressive model types, standard and structural, are given a new interpretation in which they are conceived of as the extremes of an innovating type of hybrid vector autoregressive models. It is shown that consideration of hybrid models solves many problems, in particular with Granger causality testing.

Original languageEnglish (US)
Pages (from-to)242-258
Number of pages17
JournalMultivariate Behavioral Research
Volume52
Issue number2
DOIs
StatePublished - Mar 4 2017

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Experimental and Cognitive Psychology
  • Arts and Humanities (miscellaneous)

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