Chudik, Alexander; Pesaran, M Hashem; Grossman, Valerie - Federal Reserve Bank of Dallas - 2014
This paper derives new theoretical results for forecasting with Global VAR (GVAR) models. It is shown that the presence of a strong unobserved common factor can lead to an undetermined GVAR model. To solve this problem, we propose augmenting the GVAR with additional proxy equations for the...