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Implications of Aggregation with Common Factors

Published online by Cambridge University Press:  11 February 2009

C. W. J. Granger
C. W. J. Granger
Affiliation:
University of California, San Diego
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Abstract

Many observed macrovariables are simple aggregates over a large number of microunits. It is pointed out that the generating process of the macrovariables is largely determined by the common factors in the generating mechanisms of the microvariables, even though these factors may be very unimportant at the microlevel. It follows that macrorelationships are simpler than the complete microrelationships, but that empirical investigations of microrelationships may not catch those components, containing common factors, which will determine the macrorelationship. It is also shown that an aggregate expectation or forecast is simply the common factor component of the individual agents expectations.

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Type
Articles
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Econometric Theory , Volume 3 , Issue 2 , April 1987 , pp. 208 - 222
Copyright
Copyright © Cambridge University Press 1987

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