Banerjee, Anindya (contributor); … - 2008
cointegration has focused on (3), the so-called error correction
model (ECM), and studied the properties of tests for the … models. We introduce the Factor-augmented Error Correction Model (FECM),
where the factors extracted from a dynamic factor … remains fixed, the number of cointegrating relations N−r →∞.
3
2 The Factor-augmented Error Correction Model
Let us assume …