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High-Dimensional Vars With Common Factors, Ke Miao, Peter C. B. Phillips, Liangjun Su
High-Dimensional Vars With Common Factors, Ke Miao, Peter C. B. Phillips, Liangjun Su
Research Collection School Of Economics
This paper studies high-dimensional vector autoregressions (VARs) augmented with common factors that allow for strong cross-sectional dependence. Models of this type provide a convenient mechanism for accommodating the interconnectedness and temporal co-variability that are often present in large dimensional systems. We propose an ℓ1-nuclear-norm regularized estimator and derive the non-asymptotic upper bounds for the estimation errors as well as large sample asymptotics for the estimates. A singular value thresholding procedure is used to determine the correct number of factors with probability approaching one. Both the LASSO estimator and the conservative LASSO estimator are employed to improve estimation precision. The conservative …