Abstract
Factor models explain correlations among a set of variables. By postulating that the variables are linked with a small number of latent components, factor models imply a particular structure for the correlation matrix. This article discusses the model’s identification and estimation as well as their applications in economics.
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Bai, J. (2018). Factor Models. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2298
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DOI: https://doi.org/10.1057/978-1-349-95189-5_2298
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