Common factors in conditional distributions for bivariate time series

• 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.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

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