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Questions tagged [vecm]

VECM stands for Vector Error Correction Model. It is used with cointegrated time series and panel data in finance and macroeconometrics. VECM offers a convenient representation of a cointegrated VAR model as it distinguishes between short-run and long-run (equilibrium) effects.

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How to remove seasonality?

I'm trying to do a VECM with these two monthly variables. I applied the Johansen test and they are cointegrated. As you see, they have a hard seasonality component. Should I apply a filter to remove ...
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Cointegration: comparing IRF for the univariate ECT, versus for the multivariate VECM?

Assume we have $k$ I(1) variables, cointegrated of rank $r = 1$. By cointegration, I know that the error-correction term (ECT) is itself a I(0) univariate process. Assume now I am interested in the ...
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VAR/VEC models: checking stationarity during cross-validation

I am attempting to derive a single multivariate/vector autoregressive (VAR) model from a large dataset (6-minutes sampled at 250Hz in total w/ 50 vars) using cross-validation (CV) to optimize model-...
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20 views

Distribution of coefficient on the error correction term in ECM and VECM

According to statistic academic literature, the cointegration test on coefficient $\alpha$ of the error term included in ECM or VECM does not follow a standard distribution. My question is: If so, ...
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22 views

Vector error correction model output

I'm struggling with the interpretation of one of my course examples. Here is the R output ...
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33 views

VAR/VEC model selection

I want to model a relationship between a good's price and a few variables using time-series data. I run VEC/VAR models and get a series of equations. My question is how to use these results (using ...
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22 views

VAR model residual autocorrelation and variable selection

I have a question on VECM model. I have a set of variables I had planned to include in my VECM model where one particular variable may be trend stationary (@ 10% s.l. by ADF test) while the rest are ...
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36 views

Reducing number of time series in VECM

I am exploring using VECM for several time series that are all I(1). However, I am hoping to avoid a model that is too large and was wondering if there is any way I can filter out several variables ...
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53 views

How to deal with seasonality in cointegration analysis?

I have two time series of daily gasoline prices (1500 observations each) which I suspect to be cointegrated. I aim to find an ECM/Asymmetric ECM/Threshold ECM to investigate possible asymmetries. My ...
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27 views

Estimating vector error correction model - 1 or 2 steps?

I have $n$ cointegrated price series (prices of the same stock traded on different markets) and I'd like to fit a VEC model to this data: $\Delta p_t=B_1\Delta p_{t-1}+B_2\Delta p_{t-2}+\dots +B_q\...
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28 views

Will VECM handle multiple seasons?

I have two questions: Since VAR (vector autoregression) will not handle seasonality and trend. VECM comes into play which can handle season as well as trend. I had a doubt whether it will handle ...
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24 views

VECM with Multicollinearity

I have fit a vector error correction model (VECM) to some macroeconomic data. In particular, I am interested in three relationships real GDP as a function of employment and real wages employment as a ...
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72 views

VAR model for first differences (not a good idea?)

I have read from couple of slides in the internet that if I have two $I(1)$ processes, it’s not a good idea to simply take the differences and include them in a VAR model, as then one might lose ...
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28 views

Computing half life from alpha matrix in Cointegration Analysis - Johansen test

This post suggests that we use eigen values to determine the half life of reverting to mean : https://quant.stackexchange.com/questions/2076/how-to-interpret-the-eigenmatrix-from-a-johansen-...
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89 views

Interpreting the names used in the output of Johansen test in package urca in R

Here is a snippet from an example in the package urca:- ...
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16 views

In R, using the Johansen test for cointegration, how do you know if you should use trend?

As the title, really. In my time series class, we only ever covered using using the option constant, and never trend. But now when playing around, I notice markedly different results. Ie, if I use ...
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103 views

Can I use a VAR in first differences despite having co-integrated data?

I have two variables. Both are I(1), so non-stationary in levels but stationary in first differences. However, having run some tests, I find that both are co-integrated. Based on my statistics ...
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18 views

Applying a VECM to understand lagged effects

I am trying to understand the relationship between two time series with a lagged effect. I have ensured that all of the time series are of the same order of integration - how best to proceed from here?...
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27 views

estimating Threshold-Models in seperate equations

I´m currently dealing with threshold VECM models in time series. The basic idea behind a TVECM, according to Lo and Zivot 2001 is There is one point I don´t understand: As far as I see every ...
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253 views

VECM - interpreting output from cajorls()

I am a bit puzzled on how to interpret the test results cajorls() from the urca-package. This function returns the OLS ...
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34 views

What is an alternative to Toda Yamamoto for impulse response analysis with non-stationary and cointegrated variables?

I am interested in impulse response analysis, variance decomposition and granger causality in a VAR framework. However, my variables exhibit cointegration of order 2 as well as integration of the form ...
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46 views

VAR/VEC and stationarity [duplicate]

Do VAR and VEC require no unit-roots? I have three variables where two are difference-stationary (unit roots) and one is trend-stationary (no unit root). The three of them are cointegrated. ...
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14 views

What exactly does “local identification” mean in the context of structural VARs and VECMs?

In Lutkepohl's "New Introduction to Time Series Analysis", chapter 9, this term is frequently mentioned, but is in no where well-defined. So what exactly does "local identification" mean in this ...
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In VECM, what is the difference between the number of unit root of reverse characteristic polynomial and cointegrating rank?

I read in Lutkepohl's "New Introduction to Time Series Analysis", chapter 6 (page 254) that the number of unit root of reverse characteristic polynomial is the difference between the dimension of the ...
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Why is a process stable only when the cointegrating rank of its VECM equal to the dimension of its process?

According to this book, page 248, it is because $|I_K-A_1-...-A_p|=|-\Pi|$ (reverse polynomial), which is unequal to 0. I have a questions regarding this argument: Wouldn't $|I_K-A_1-...-A_p|=|-\Pi|=...
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Interpretation VECM

I am testing two Variables, lets say "A" and "B" that are cointegration of order I(1). I am using a VECM and define "A" as my dependent variable and the VECM says that the significant error correction ...
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How to use the residual of FMOLS when conducting VECM in Stata

I am trying to figure out whether the results of FMOLS (cointreg command in Stata) has uni-directional or bi-directional Granger causality relationship. I have seen people do this in Eviews but not in ...
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62 views

VECM in matrix form - explanation

I am wondering if someone can help me with explaining some variables in that VECM equation in a matrix form and checking if my previous assumptions are right about the parameters. So $\varphi$ in ...
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53 views

R code for Granger representation theorem of VECM model

Is there any R package or code snippet to obtain the Granger representation of a Vector Error Correction Model (VECM) as describe in HANSEN, 2005 ? The VECM model would be the output of ...
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1answer
124 views

Lag Zero in VECM

I am trying to fit VECM model on my data. Data contains two non stationary series of two Variables Y and X. I am trying to fit following VECM model using URCA package. Regressing Y on X and lagged ...
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10 views

Can Error Correction Terms in 2 variable ARDL models be positive and negative? [duplicate]

Can the error correction term (ECT) in ARDL models take positive values? Does this necessarily mean that the model is explosive? I am using ARDL models instead of VECM models because my series have ...
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228 views

ECM (error correction model): interpretation of a I(1) differentiated time serie as its “variation around its long-run trend”

I am reading Greene's "Econometric Analysis" book, and more specifically the chapter on cointegration. I do not understand his interpretation of the components of an error correction model (page 1003 ...
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54 views

VEC model: EViews differences variables authomatically

I am performing a multivariate time series analysis. My variables are stationary at level. Whenever I want to make a VEC model, but EViews will difference the data authomatically. What can I do about ...
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71 views

Long-term relation between time series with deterministic trends

say I have two time series that move together but both seem to be characterised by a deterministic trend. I have two questions: How can I test whether the trend is deterministic or stochastic? How ...
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68 views

Intuition behind vec2var function

I am currently trying to evaluate the relationship between a Housing Price Index and a number of macroeconomic fundamentals such as: GDP Employment rate Mortgage Interest rate EU Housing Price ...
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45 views

VECM lag 1 => is 1-1=0 , or VAR (-1) , or VAR at difference. which one?

Good day for all, I run a regression,all variables are I(1), THE OTIMAL lag according to SIC is one means I should do VECM (1-1=0) the coefficient of the Error correction term (ECT) is negative but ...
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Vector Error Correction Models (sign of the coefficent) [duplicate]

I am working on a VEC model atm, testing for cointegration between 4 variables (the Nikkei, interest rate, M2, and unemployment). My question is this however: When assessing the VECM output, how ...
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1answer
403 views

The role of Granger causality in VAR/VECM model selection

How exactly does identification of Granger Causality (or lack of) between variables affect my decision for what variables to include in my VAR or VECM model? The motivation behind the question is ...
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149 views

VECM - How many cointegrating equations can you have?

For simplicity, consider the vector of three time series $\overrightarrow{A} = \{ X_{t}\ \ Y_{t} \ \ Z_{t} \}^{'}$ I thought it was the case that if you had $n$ time series, you could have up to $(n-...
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Normalization choice in cointegration models

Im a student in econometrics and Im currently working on vector error correction models (VECM). Im facing a problem with correction error coefficients signs. My teacher stated that they must be ...
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2answers
72 views

Using a VAR over a VECM (in spite of of existing cointegration)

Is there ever a reason to use a first differenced VAR over a VECM when all your variables are I(1) and co integration exists? The reason why I ask is because I see in the most recent Bank of Canada ...
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Does it make sense to produce a forecast in R using a VECM in this way? [closed]

My team uses Error correction models to produce forecasts. To do this the Engel Granger 2 step approach was used. I've read online that the 2 step approach is a little outdated and When this was peer-...
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707 views

Estimating and Explaining VECM Model in EViews

I've been asked to Estimate and explain the results of the following vector error correction model ΔTB = 𝛼1+ 𝛼2 ΔTB at time (𝑡−1) +𝛼3ΔTB at time (𝑡−2) + 𝛼4ΔG10 at time (𝑡−1) +𝛼5ΔG10 at time (...
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1answer
403 views

Which model to use between VAR and VECM for the following problems (conditions)?

I have three variables (monthly for 25 years) including wages (e.g. skilled and unskilled) and food price (P). I am interested to see if there any relationship exist between them, either short or long ...
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2answers
64 views

If a DGP is ARIMA(P,D,0) does that imply no other variables affect this process?

Im currently working with some time series data and have ran a number of tests, presuming the need of a VAR or VECM for an optimal forecast. However, upon going back to basics I noticed that the ...
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144 views

VAR models with de-trend time series vs VECM

I am working in a VAR model for an economic research. I have been reading about this but there is something i still don't get. Based in the books I have read: 1) if I have 2 time series, both are ...
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I(1) data which changes to I(2) when shortened

I am currently dealing with some monthly data on interest rates which goes back over thirty years. The total 30 years worth of data is I(1). However when I shorten this data to go back only 10 years ...
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VAR or VECM for a system of I(0) and I(1) variables? [duplicate]

I have 4 variables (time series). All the variables depend on each other. Two of them are non - stationary and the others are stationary . If I apply log transformation in the non-stationary variables,...
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1answer
113 views

Does existance of Cointegration mean that VECM is preferred to VAR?

I have some data which had to be logged and differenced once to induce stationary. I ran the Johansen test for cointegration and found that it is present in my data set. Does this fact tell me that ...
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165 views

IRF with I(1) variables? VECM needed?

Here is a question related to IRF, impulse response functions, in the vars package. My data has following attributes: I do have two log-transformed variables that are tested as I(1). I.e. the two ...