Generalized Dynamic Factor Models for Mixed-Measurement Time Series

In this article, we propose generalized Bayesian dynamic factor models for jointly modeling mixed-measurement time series. The framework allows mixed-scale measurements associated with each time series, with different measurements having different distributions in the exponential family conditionally on time-varying latent factor(s). Efficient Bayesian computational algorithms are developed for posterior inference on both the latent factors and model parameters, based on a Metropolis–Hastings algorithm with adaptive proposals. The algorithm relies on a Greedy Density Kernel Approximation and parameter expansion with latent factor normalization. We tested the framework and algorithms in simulated studies and applied them to the analysis of intertwined credit and recovery risk for Moody’s rated firms from 1982 to 2008, illustrating the importance of jointly modeling mixed-measurement time series. The article has supplementary materials available online.