My final goal is to generate Impulse Response Functions in R.
I have variables that are non stationary when I set k = 5 in a Unit Root test, and they are cointegrated which to my understanding prompts the use of the VECM, from which the Vec2Var argument is used to then generate IRFs. However, my response functions from this methodology do not decay over time and mostly do not revert to the zero line.
Furthermore, I noticed that when I input first differenced variables into the VECM as opposed to level data above, response function do revert to the zero line. Therefore my first question is: 1) is it appropriate to use differenced variables in a VECM model?
Secondly, as an alternative I am considering restricting the number of lags used in the Unit Root tests so that the variables are not all non-stationary; in this case 2) would the use of VECM be void and the VAR with first differences be a more appropriate model? Again, using differenced data is giving me better response functions that revert to zero in the long run. However, 3) is it ok to use the VAR for stationary/non-stationary data in levels where these variables are still cointegrated?
Also, I am using growth rate variables, 4) should I still long transform all variables and use logs in all tests?
Thank you for the help!