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Did financial factors matter during the Great Recession?

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  • Paccagnini, Alessia

Abstract

Yes, they mattered. To reply to this question, we assess the predictive content of macroeconomic and financial latent factors on the key variables (Industrial Productivity, Short-term interest rate, and Inflation) during the Great Recession period (2007–2009) in the United States. In this respect, we propose a forecasting analysis using a Factor Augmented VAR model. When we estimate the model with only financial factors, we improve the predictions in the short and medium horizons. Meanwhile, when we estimate the model with only macroeconomic factors, we improve the forecasting performance in the longer horizon.

Suggested Citation

  • Paccagnini, Alessia, 2019. "Did financial factors matter during the Great Recession?," Economics Letters, Elsevier, vol. 174(C), pages 26-30.
  • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:26-30
    DOI: 10.1016/j.econlet.2018.10.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Factor models; Factor augmented VAR; Forecasting;

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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