An Overview of the Factor-augmented Error-Correction Model
ISBN: 978-1-78560-353-2, eISBN: 978-1-78560-352-5
Publication date: 6 January 2016
Abstract
The Factor-augmented Error-Correction Model (FECM) generalizes the factor-augmented VAR (FAVAR) and the Error-Correction Model (ECM), combining error-correction, cointegration and dynamic factor models. It uses a larger set of variables compared to the ECM and incorporates the long-run information lacking from the FAVAR because of the latter’s specification in differences. In this paper, we review the specification and estimation of the FECM, and illustrate its use for forecasting and structural analysis by means of empirical applications based on Euro Area and US data.
Keywords
Acknowledgements
Acknowledgements
We would like to thank the Editors, two anonymous Referees and participants at the 16th Advances in Econometrics Conference, held at CREATES, Aarhus University, for helpful comments on a previous draft.
Citation
Banerjee, A., Marcellino, M. and Masten, I. (2016), "An Overview of the Factor-augmented Error-Correction Model", Dynamic Factor Models (Advances in Econometrics, Vol. 35), Emerald Group Publishing Limited, Leeds, pp. 3-41. https://doi.org/10.1108/S0731-905320150000035001
Publisher
:Emerald Group Publishing Limited
Copyright © 2016 Emerald Group Publishing Limited