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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 515:
Common factors in conditional distributions

Clive W.J. Granger (), Timo Teräsvirta () and Andrew J. Patton ()

Abstract: The concept of common factors has in the econometrics literature been applied to conditional means or in some cases to conditional variances. In this paper we generalize this concept to bivariate distributions. This is done using the conditional bivariate copula as the statistical tool. The definition of common factors in distributions is illustrated by an empirical application to the income-consumption relationship, using monthly US time series. Evidence is found to support the claim that the true relationship between these variables is independent of the phase of the business cycle. The indicator representing the business cycle is thus a common factor in distributions of the type defined and discussed in the paper.

Keywords: bivariate time series; business cycles; conditional distribution; consumption-income relationship; copula; multivariate time-series model; (follow links to similar papers)

JEL-Codes: C32; C53; (follow links to similar papers)

12 pages, November 20, 2002

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This paper is published as:
Granger, Clive W.J., Timo Teräsvirta and Andrew J. Patton, (2006), 'Common factors in conditional distributions for bivariate time series', Journal of Econometrics, Vol. 132, pages 43-57

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