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Did financial factors matter during the Great Recession?

Alessia Paccagnini

Economics Letters, 2019, vol. 174, issue C, 26-30

Abstract: Yes, they mattered. To reply to this question, we assess the predictive content of macroeconomic and financial latent factors on the key variables (Industrial Productivity, Short-term interest rate, and Inflation) during the Great Recession period (2007–2009) in the United States. In this respect, we propose a forecasting analysis using a Factor Augmented VAR model. When we estimate the model with only financial factors, we improve the predictions in the short and medium horizons. Meanwhile, when we estimate the model with only macroeconomic factors, we improve the forecasting performance in the longer horizon.

Keywords: Factor models; Factor augmented VAR; Forecasting (search for similar items in EconPapers)
JEL-codes: C38 C53 C3 E32 E3 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.econlet.2018.10.005

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