Banerjee, Anindya; Marcellino, Massimiliano - IGIER (Innocenzo Gasparini Institute for Economic … - 2008
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...