Title: Forecasting with FAVAR: Macroeconomic versus financial factors
Authors: Alessia Paccagnini - University College Dublin (Ireland) [presenting]
Abstract: The purpose is to assess the predictive power of macroeconomic and financial latent factors on the key variables for the US economy before and after the recent Great Recession. We implement a forecasting horse race among Factor Augmented VAR(FAVAR), Classical, and Bayesian VAR models. FAVAR models outperform others. Focusing only on macroeconomic or on financial latent factors, we find how the financial variables have not a driver role in forecasting the US economy including the Great Recession.