A Note on the Dimension of the Projection Space in a Latent Factor Regression Model with Application to Business Cycle Classification

摘要

In this paper it is shown that the number of latent factors in a multiple multivariate regression model need not be larger than the number of the response variables in order to achieve an optimal prediction. The practical importance of this lemma is outlined and an application of such a projection on latent factors in a classification example is given.