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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Test of Block Zero Restrictions in Factor Loadings

Vol.30, No.3, September , 100–112



  •   (Korea University)

  •   (Korea University)

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Abstract  

As a companion paper to Han and Kim (2019) on testing for block zero restrictions in common factors, this paper proposes a test of block zero restrictions in factor loadings, which have empirical relevance in various topics in economics. The test statistic is constructed using the principal component estimate of factor loadings and has a chi-square distribution asymptotically under the null hypothesis of block zero restrictions. The test is applied to a panel of 132 monthly U.S. macro economic time series, which are classified into three groups. The test results show a multi-level structure in factor loadings.


Keywords
   Multi-level factors, Hierarchical factors, Factor models

JEL classification codes
   C23
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