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arXiv · 2307.09974

Dynamic factor and VARMA models: equivalent representations, dimension reduction and nonlinear matrix equations

Shankar Bhamidi·Dhruv Patel·Vladas Pipiras
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Abstract

A dynamic factor model with factor series following a VAR$(p)$ model is shown to have a VARMA$(p,p)$ model representation. Reduced-rank structures are identified for the VAR and VMA components of the resulting VARMA model. It is also shown how the VMA component parameters can be computed numerically from the original model parameters via the innovations algorithm, and connections of this approach to non-linear matrix equations are made. Some VAR models related to the resulting VARMA model are also discussed.

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Shankar Bhamidi, Dhruv Patel, Vladas Pipiras. 2023-07-19. Dynamic factor and VARMA models: equivalent representations, dimension reduction and nonlinear matrix equations. https://arxiv.org/abs/2307.09974

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