I want to use VECM model for return as dependent variable and I have 5 variables as independent; my data is monthly ...and my questions are:

  1. How could I know if I should use linear or non linear for my model when I want to use VECM?
  2. How many lags should I use for VECM and Johansen (when there are for example X1 stationary at level, X2 stationary at first difference, X3 stationary at second difference)?
  3. What is the difference between the VECM model and the system for the VECM model? And which one should I use to check for $R^2$ and LM and heteroscedasticity tests ...ets?
  4. If my results show 4 cointegration which one should I use?

I will appreciate any help ...or if there are books for my subject could any one guide me please?

  • $\begingroup$ Uhm... is there anything useful in say Hamilton? $\endgroup$ – StasK Nov 12 '14 at 4:24
  • $\begingroup$ unfortunately i don't have that book $\endgroup$ – T.G. Zain Nov 12 '14 at 9:38

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