Structural FECM: Cointegration in large-scale structural FAVAR models

@inproceedings{Banerjee2017StructuralFC,
  title={Structural FECM: Cointegration in large-scale structural FAVAR models},
  author={Anindya Banerjee and Massimiliano Marcellino and Igor Masten},
  year={2017}
}
Starting from the dynamic factor model for non-stationary data we derive the factor-augmented error correction model (FECM) and, by generalizing the Granger representation theorem, its moving-average representation. The latter is used for the identification of structural shocks and their propagation mechanism. Besides discussing contemporaneous restrictions along the lines of Bernanke et al. (2005), we show how to implement classical identification schemes based on long-run restrictions in the… CONTINUE READING
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