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We estimate the factor model within a Bayesian framework, specifying a sparse prior distribution for the factor loadings. Based on identified posterior factor loading estimates, we provide alternative methods to identify relevant and irrelevant variables. Simulations show that both types of variables are identified quite accurately. Empirical estimates for a large multi\u2010country GDP dataset and a disaggregated inflation dataset for the USA show that a considerable share of variables is irrelevant for factor estimation.<\/jats:p>","DOI":"10.1002\/jae.2566","type":"journal-article","created":{"date-parts":[[2017,4,25]],"date-time":"2017-04-25T10:05:28Z","timestamp":1493114728000},"page":"1123-1144","source":"Crossref","is-referenced-by-count":25,"title":["Identifying relevant and irrelevant variables in sparse factor models"],"prefix":"10.1002","volume":"32","author":[{"given":"Sylvia","family":"Kaufmann","sequence":"first","affiliation":[{"name":"Study Center Gerzensee Gerzensee Switzerland"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Christian","family":"Schumacher","sequence":"additional","affiliation":[{"name":"Deutsche Bundesbank Frankfurt am Main Germany"}],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"311","published-online":{"date-parts":[[2017,4,25]]},"reference":[{"key":"e_1_2_8_2_1","doi-asserted-by":"crossref","first-page":"338","DOI":"10.1080\/07350015.2000.10524875","article-title":"Bayesian dynamic factor models and portfolio allocation","volume":"18","author":"Aguilar O.","year":"2000","journal-title":"Journal of Business & Economic Statistics"},{"key":"e_1_2_8_3_1","doi-asserted-by":"publisher","DOI":"10.1162\/REST_a_00045"},{"key":"e_1_2_8_4_1","first-page":"111","volume-title":"Proceedings of the third Berkeley symposium on mathematical statistics and probability: Contributions to econometrics, industrial research, and psychometry","author":"Anderson T.","year":"1956"},{"key":"e_1_2_8_5_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jeconom.2013.03.007"},{"key":"e_1_2_8_6_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jeconom.2013.11.001"},{"key":"e_1_2_8_7_1","volume-title":"Bayesian Inference in Dynamic Econometric Models","author":"Bauwens L.","year":"1999"},{"key":"e_1_2_8_8_1","doi-asserted-by":"publisher","DOI":"10.1162\/0033553053327452"},{"key":"e_1_2_8_9_1","doi-asserted-by":"publisher","DOI":"10.1093\/biomet\/asr013"},{"key":"e_1_2_8_10_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jeconom.2005.01.027"},{"key":"e_1_2_8_11_1","doi-asserted-by":"publisher","DOI":"10.1093\/biomet\/81.3.541"},{"key":"e_1_2_8_12_1","volume-title":"Structure and sparsity in high\u2010dimensional multivariate analysis","author":"Carvalho C. 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