I estimated a FAVAR (Factor Augmented VAR) model for forecasting purposes. The FAVAR gave a very low RMSE value compared to VAR. However, I am unable to interpret the factors through factor loadings. Usually researches incorporate coefficient of determination (R squared) to interpret the factors. But, how to get the R squared values by using factor loadings. Given below is a snapshot of the factor loadings of the fitted model:

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Very low factor loadings might be since the series are log differenced.



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