[go: up one dir, main page]

  EconPapers    
Economics at your fingertips  
 

Factor-augmented Error Correction Models

Anindya Banerjee and Massimiliano Marcellino

No 335, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: This paper brings together several important strands of the econometrics literature: errorcorrection, cointegration and dynamic factor models. It introduces the Factor-augmented Error Correction Model (FECM), where the factors estimated from a large set of variables in levels are jointly modelled with a few key economic variables of interest. With respect to the standard ECM, the FECM protects, at least in part, from omitted variable bias and the dependence of cointegration analysis on the specific limited set of variables under analysis. It may also be in some cases a refinement of the standard Dynamic Factor Model (DFM), since it allows us to include the error correction terms into the equations, and by allowing for cointegration prevent the errors from being non-invertible moving average processes. In addition, the FECM is a natural generalization of factor augmented VARs (FAVAR) considered by Bernanke, Boivin and Eliasz (2005) inter alia, which are specified in first differences and are therefore misspecified in the presence of cointegration. The FECM has a vast range of applicability. A set of Monte Carlo experiments and two detailed empirical examples highlight its merits in finite samples relative to standard ECM and FAVAR models. The analysis is conducted primarily within an in-sample framework, although the out-of-sample implications are also explored.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://repec.unibocconi.it/igier/igi/wp/2008/335.pdf (application/pdf)

Related works:
Journal Article: Forecasting with factor-augmented error correction models (2014) Downloads
Working Paper: Forecasting with Factor-augmented Error Correction Models (2010) Downloads
Working Paper: Forecasting with Factor-Augmented Error Correction Models (2009) Downloads
Working Paper: Forecasting with Factor-augmented Error Correction Models (2009) Downloads
Working Paper: Factor-augmented Error Correction Models (2008) Downloads
Working Paper: Factor-augmented Error Correction Models (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:igi:igierp:335

Ordering information: This working paper can be ordered from
https://repec.unibocconi.it/igier/igi/

Access Statistics for this paper

More papers in Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University via Rontgen, 1 - 20136 Milano (Italy).
Bibliographic data for series maintained by ().

 
Page updated 2024-12-23
Handle: RePEc:igi:igierp:335