Distinguishing Time-Varying Factor Models
提出两种基于随机化方法的检验，用于区分时变因子载荷是确定性时间函数还是单位根过程，并在美国及全球宏观金融数据中推荐使用确定性函数。
Time-varying factor models have been widely used to model changing relationships among economic and financial variables. The existing literature usually specifies the time-varying factor loadings as deterministic functions of time or unit root processes. This paper proposes two consistent tests to distinguish these two specifications based on a randomization approach. By setting the null hypothesis as either specification, we show that the proposed test statistics follow an asymptotic chi-squared distribution under the respective null hypotheses and diverge to infinity in probability under the respective alternatives. Simulation studies reveal that both test statistics perform reasonably well in finite samples. We apply the proposed tests to the U.S. macroeconomic and global macroeconomic and financial datasets. The results suggest that the time-varying factor loadings as deterministic functions of time should be adopted for these two applications.