Factor Vector Autoregressive Estimation: A New Approach
Journal of Economic Interaction and Coordination, Vol. 3, pp. 15-23, 2008
Posted: 10 Dec 2006 Last revised: 9 Jun 2013
Date Written: December 2006
In this paper a new approach to factor vector autoregressive estimation, based on Stock and Watson (2005), is introduced. In addition to sharing all the relevant features of the Stock and Watson (2005) approach, in its static formulation, the proposed method has the advantage of allowing for a more clear-cut interpretation of the global factors, as well as for the identification of all idiosyncratic shocks. An application to large-scale macroeconometric modelling is also provided.
Keywords: factor vector autoregressive models, large scale macroeconometric models
JEL Classification: C32
Suggested Citation: Suggested Citation