A Real Econometrics Seminar

Last Friday we were treated to a particularly good seminar in our Department. Sílvia Gonçalves (here, at Université de Montréal) presented a paper, "Bootstrapping factor-augmented regression models" (joint with Benoit Perron). Yes, an actual Econometrics seminar!

The topic was timely and extremely interesting, the material was well motivated, and the presentation of some very elegant material was exceptionally clear. An Econometrics seminar at its best - what a breath of fresh air!

The paper extended earlier work on factor-augmented models by Bai (2003), Bai and Ng (2002, 2006), Ludvigson and Ng (2009), Onatski (2011), and others in several important directions. One of the interesting things about these models is that they use principal components analysis as a dimension-reduction device to enable one to incorporate a vast number of unobservable effects as additional regressors in a model. (I discussed the use of principal components to deal with a "degrees of freedom" issue in simultaneous equations modelling in an earlier post, here.)

Some interesting identification issues arise with these factor-augmented models, and great care has to be taken over the asymptotics, and with applying bootstrap methods correctly. We'll be seeing a lot more of these models, I'm sure.

One of our grad. students commented to me as we left the room - "Wow! That was great. I learned so much!"

Isn't that what every seminar speaker (and host) wants to hear? Thanks again Sílvia!

Note: The links to the following references will be helpful only if your computer's IP address gives you access to the electronic versions of the publications in question. That's why a written References section is provided.

References

Bai, J. (2003). Inferential theory for factor models of large dimensions, Econometrica, 71, 135-172.

Bai, J. and S. Ng (2002). Determining the number of factors in approximate factor models, Econometrica, 70, 191-221.

Bai, J. and S. Ng  (2006). Confidence intervals for diffusion index forecasts and inference with factor-augmented regressions, Econometrica, 74, 1133-1150.

Ludvigson, S. and S. Ng (2009). A factor analysis of bond risk premia. Handbook of Applied Econometrics, forthcoming.

Onatski, A. (2011). Asymptotics of the principal components estimator of large factor models with weakly influential factors. Manuscript, University of Cambridge.

© 2011, David E. Giles