An Overview of the Factor-augmented Error-Correction Model

Anindya Banerjee, Massimiliano Marcellino and Igor Masten

Discussion Papers from Department of Economics, University of Birmingham

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: Dynamic Factor Models; Cointegration; Structural Analysis; Factor-augmented Error Correction Models; FAVAR (search for similar items in EconPapers)
JEL-codes: C32 E17 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2015-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
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https://repec.cal.bham.ac.uk/pdf/15-03.pdf

Related works:
Chapter: An Overview of the Factor-augmented Error-Correction Model (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:15-03

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