# 11-042/2/DSF16 (2011-02-21)

Drew Creal, University of Chicago, Booth School of Business; Bernd Schwaab, European Central Bank; Siem Jan Koopman, VU University Amsterdam; Andre Lucas, VU University Amsterdam
panel data, loss given default, default risk, dynamic beta density, dynamic ordered probit, dynamic factor model
JEL codes:
C32, G32

This paper led to a publication in the 'Review of Economics and Statistics', 2014, 96(5), 898-915.

We propose an observation-driven dynamic factor model for mixed-measurement and mixed-frequency panel data. Time series observations may come from a range of families of distributions, be observed at different frequencies, have missing observations, and exhibit common dynamics and cross-sectional dependence due to shared dynamic latent factors. A feature of our model is that the likelihood function is known in closed form. This enables parameter estimation using standard maximum likelihood methods. We adopt the new framework for signal extraction and forecasting of macro, credit, and loss given default risk conditions for U.S. Moody's-rated firms from January 1982 to March 2010.