Common factors in conditional distributions for bivariate time series

Journal Article

A definition for a common factor for bivariate time series is suggested by considering the decomposition of the conditional density into the product of the marginals and the copula, with the conditioning variable being a common factor if it does not directly enter the copula. We show the links between this definition and the idea of a common factor as a dominant feature in standard linear representations. An application using a business cycle indicator as the common factor in the relationship between U.S. income and consumption found that both series held the factor in their marginals but not in the copula. © 2005 Elsevier B.V. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Granger, CWJ; Teräsvirta, T; Patton, AJ

Published Date

  • 2006

Published In

Volume / Issue

  • 132 / 1

Start / End Page

  • 43 - 57

International Standard Serial Number (ISSN)

  • 0304-4076

Digital Object Identifier (DOI)

  • 10.1016/j.jeconom.2005.01.022