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A Random Matrix Approach to Dynamic Factors in macroeconomic data

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Published Article
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arXiv ID: 1201.6544
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arXiv
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Abstract

We show how random matrix theory can be applied to develop new algorithms to extract dynamic factors from macroeconomic time series. In particular, we consider a limit where the number of random variables N and the number of consecutive time measurements T are large but the ratio N / T is fixed. In this regime the underlying random matrices are asymptotically equivalent to Free Random Variables (FRV).Application of these methods for macroeconomic indicators for Poland economy is also presented.

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