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-Watson 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.
Factor Vector Autoregressive Estimation: A New Approach
BAGLIANO, Fabio Cesare;
2008-01-01
Abstract
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-Watson 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.
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