# Difference of Rates in ECM

I am setting up a model to predict something using Error Correction Model (see pic. to get a general view about the model itself).

Some of my $$X$$ variables are the interest spread between the A and B govt bill (Sprd) (e.g. 90 day). At this point I have a practical question:

Regarding $$\triangle Sprd$$, what is the standard procedure to estimate it?:

1. take the difference as a simple $$Sprd_{t}-Sprd_{t-1}$$
2. or apply $$Sprd_{t}/Sprd_{t-1}-1$$

As far as I know, the invariant of this kind of variable are option 1 (Meucci´s book), but I am not really sure if this is valid is in this case.

• If $\Delta X_t = Sprd_t/Sprd_{t-1} - 1$, then what is $X_t$? Presumably you want its lagged value to appear in the error-correction term. – The Laconic Mar 13 at 15:59