SFB649DP2017 026
Dynamic Semiparametric Factor Model with a Common Break
Likai Che
Weining Wang
Wei Biao Wu
Abstract:
For change-point analysis of high dimensional time series, we consider a semiparametric model with dynamic structural break factors. The observations are described by a few low dimensional factors with time-invariate loading functions of covariates. The unknown structural break in time models the regime switching effects introduced by exogenous shocks. In particular, the factors are assumed to be nonstationary and follow a Vector Autoregression (VAR) process with a structural break. In addition, to account for the known spatial discrepancies, we introduce discrete loading functions. We study the theoretical properties of the estimates of the loading functions and the factors. Moreover, we provide both the consistency and the asymptotic convergence results for making inference on the common breakpoint in time. The estimation precision is evaluated via a simulation study. Finally we present two empirical illustrations on modeling the dynamics of the minimum wage policy in China and analyzing a limit order book dataset.
Keywords:
high dimensional time series, change-point analysis, temporal and cross-sectional dependence, vector autoregressive process
JEL Classification:
C00