Dynamic factor model estimation

Topics: FAVAR, VAR, SVAR, FAVAR
Jul 7, 2014 at 1:14 PM
Hi

I know you can do a DFM model with the FAVAR() object together with the filter commend in IRIS.

I am looking to estimate a model of the form:

y(t) = Cx(t) + y_bar +alphaZ(t) +u(t)
x(t) = Ax(t-1) + Be(t)

In essence I am trying to construct a financial conditions index (FCI), where the estimated factor (x(t)) is the FCI. But I want to abstract from the feedback from GDP growth (Z) on the observables - hence the inclusion of Z(t) in the signal equation.

Any help on how to do this would be appreciated!

Regards
Harri