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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Deterministic trend in VECM/VAR

I have a question regarding VECMs with deterministic terms. Consider the following VECM $$\Delta y_t= A(B'y_{t−1}+c_0)+c_1+B_1\Delta y_{t-1}+\dots+B_q\Delta y_{t-q}+\epsilon_t.$$ Note, that this ...
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Johansen-Procedure: Values of teststatistic and critical values of test?

I am trying to run a Johansen-Procedure in a set of macroeconomic variables (GDP, credit outstanding and industrial production). I am working with them in level. How should I interpret the following ...
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18 views

Johansen-Procedure Interpretation (ca.jo)

I am trying to run a Johansen-Procedure in a set of macroeconomic variables (GDP, credit outstanding and industrial production). I am working with them in level. How should I interpret the following ...
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20 views

Multivariate time series analysis with different sampling rates

I have four time series that cover the same time period. I want to perform cointegration analysis on them to investigate any potential cointegration relations and to estimate a VECM model. However, ...
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46 views

Cointegration in ARIMAX regressions in R?

I’m running some ARIMA(X) regressions in R with several (control-) regressors including dummy variables and have some general questions concerning possibly cointegrated variables in ARIMA regressions. ...
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25 views

My VECM Model Produces The Same Residuals For A Two Asset Portfolio

I have a two asset portfolio with 2 cointegrated ETF's. I would like to see when the ETF's deviates from their equilibrium. Before I show the model, what I expect to happen was that if one ETF's ...
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15 views

How to retrieve alpha and beta from the Johansen Test

I am struggling a little bit with the Johansen test. I understand how to carry out the trace test(s) and how the rank of $\pi$ (standard notation). However, I am unsure on how to retrieve $\alpha$ and ...
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51 views

VECM: Normalized cointegrated vectors

I try to understand the cointegration vector of VECM by the example below: a Johansen cointegration test of three variables. The test results indicate there are 2 cointegration relationship (r<=2)...
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43 views

Queries on Interpretation of Vector Error Correction Model

I am trying to understand the Vector Error Correction (VEC) Model properly. I have been trying to read from several sites, went through the Chapter in Chris Brooks. But with different sources, the ...
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56 views

VECM Impulse Response Function: Interpretation of Results

I estimated a VECM and generated Generalised Impulse Response Functions based on Johansen Cointegration. Below is an output of two response variables to a shock in GDP. My issue is, I have strong ...
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17 views

How to interpret impulse-response functions in relation to beta and alpha coefficients?

How do I interpret impulse-response functions (IRFs) in relation to beta and alpha coefficients obtained from a Johansen cointegration test? For instance, my target (normalized) variable Y has a speed ...
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38 views

Deseasonalize data AND deflate with CPI?

I have property return variables and economic variables that I am using in a VECM/VAR to generate Impulse Response Functions. I have deflated my data with CPI, but do I also have to deseasonalize the ...
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32 views

Impulse Response Functions R: Transitory Shocks for Non-Stationary Data

I am working on generating Impulse Response Functions via the VECM and VAR models, an hence have data that is non-stationary in levels, stationary in first differences and cointegrated. My IRFs ...
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37 views

VECM with first differences? [closed]

Is it ok to take first differences of data which is non stationary in levels but stationary in first differences (and cointegrated), and input these differenced variables into the VECM? Or does this ...
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46 views

VAR for Non-Stationary Data? [duplicate]

I have property return variables and economic variables in natural log form, which are non-stationary in level and stationary in first differences, but are not cointegrated. To my understanding, this ...
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157 views

Levels or First Differences, VECM or VAR for Ultimate Impulse Response Functions?

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 ...
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32 views

VECM and Impulse Response Functions in R: Trend and Stationarity [duplicate]

I am looking to ultimately generate Impulse Response Functions and plotting them for a set of variables. These variables are all non-stationary in levels when a lag order of 5 is selected. They are ...
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Cointegration in R: Which regressions are performed in `urca::ca.jorls` and how does the output differ from `urca::ca.jo`?

In cajorls function from urca package a series of OLS is performed. From the documentation: This function returns the OLS ...
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I want to use VECM, does that mean all my variables should be stationary in the first difference at trend and intercept?

All my variables are I(1) using none, and intercept models, but not stationary using trend and intercept models. Not sure if I can use these variables in VECM?
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When should one use breakpoint unit root test, e.g. Zivot-andrew unit root test

I have conducted the ADF unit root test, all my variables are I(1) in all the three models: intercept, trend and intercept, and none. But my reviewer suggested me to include a structural break unit ...
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34 views

(VAR/VECM) Difference between fitted value and predicted value using in-sample data

My understanding of the mechanism of generating fitted values of VAR or VECM is much like lm() (perhaps since VAR/VECM use linear regression to estimate coefficients?), where the data is just used to ...
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How well do VECM estimates perform when used for short term price forecasting

I was wondering if VECM can be used for estimating short term prices of assets, natural gas for instance. From what I understand it seems like its more used for deriving a long term estimation of an ...
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How to obtain Covariance-variance matrix for VECM

I am trying to conduct a causality analysis with a VECM, and I am looking for ways to extract the Covariance-Variance matrix and the correlation matrix from the fitted VECM using the already existing ...
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26 views

VAR obtained from vec2var() and and regular VAR giving different IRF and OIRF

I am currently trying to generate the orthogonal impulse response functions (OIRF) of a VECM with two variables. Both variables are I(1) and there is definitely a cointegration at all levels as tested ...
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116 views

Interpreting Vector Error Correction Model in STATA

I'm studying the relationship between house prices and GDP, unemployment, mortgage rate, construction starts and construction costs. Kwiatkowski-Phillips-Schmidt-Shin test declines stationarity and ...
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Unstable panel VAR / PVAR

Quick question on PVARs. I am using Stata's user-written pvar package. After running the unit root tests using xtunitroot, I ...
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VECM: Why does Speed of adjustment/Error Correction Term have to be a matrix?

From what I understand, Loading matrix, or alpha, is the same as Error Correction Matrix, which also refers to the speed of adjustment. However, if the speed of adjustment measures how many percentage ...
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37 views

Chow test results interpretation

I am analysing time series data right now using gretl, and want to test for a structural break, but I am not quite sure how I have to interpret the results. Let's say I have a wheat price and flour ...
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49 views

Level VAR stability for VECM estimation

I am trying to estimate VECM model for I(1) and cointegrated data. First, I try to find the optimal number of lags by using VARselect by following the below steps: level data is given to VARselect, ...
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40 views

Interpretation of Betas and alphas in a VECM

Imagine I set up a VECM where there is only one cointegrated vector among three variables A, B and C and the vector of betas B1, B2 and B3 is (1,-0.25, -0.4) and the alphas a1, a2 and a3 are -0.5, -0....
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211 views

Simulate An Error Correction Model with Multiple Cointegrating Vectors

Simulating multiple time series with a single cointegrating vector can be done as follows: $S_t = S_{t-1} - \kappa (S_{t-1} \cdot P-\mu) \Delta t + \epsilon_t\sqrt{\Delta t} $ where the noise $\...
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Granger representation theorem - reverse always true?

The Granger representation theorem claims that a vector error correction model can be transformed into a "common trend representation" (processes share the same stochastic trend) if some criteria are ...
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153 views

Deriving the Cointegrating Equation in a VECM model

I am teaching myself econometrics and I am having trouble understanding how the cointegrating equation in VECM is derived. Lets say we have two variables, Consumption and Income. As I understand it, ...
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Existence of a common term if time series are pairwise cointegrated

Let's suppose that we have $n$ time series that are integrated of order one: $y_t^i\sim I(1)$ for $i=1, 2, \dots, n$ The difference between any two series is stationary: $y_t^i-y_t^j\sim I(0)$ for $...
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166 views

Cointegration (different coefficients using VECM /ca.jo and p-values)

I am trying to get the p-values of my cointegrating vector. I read many questions about it and most of the answers relies on ca.jo funtion from ...
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24 views

Can I use VAR model on I(1) series with cointegration? [duplicate]

I have four I(1) series, and the Johansen test(ca.jo()) shows there is one cointegration. My purpose is to forecast, so I want to compare the forecasting results of VAR and VECM model. Is this ...
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121 views

Why do we need a VECM specification if the I(1) processes are cointegrated?

I happened to question the rationale of employing VECM, since some empirical studies like Basu (2017) employed a VAR model to obtain impulse-response analysis. As far as I know, one should consider ...
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Can I treat the sum of the coefficients of a variable in the Error Correction Model as total short-run effects?

I am working on a project that uses ECM model to inspect the short-run dynamics of money supply (m(t)) to loans (l(t)) since both variables are I(1). Excluding the error correction term, is it ...
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50 views

What diagnostic tests are mandatory for VECM?

I have finished a test of VECM, I have included Breusch-Godfrey Serial Correlation LM Test and Heteroskedasticity Test (Breusch-Pagan-Godfrey). Not sure are these sufficient? Do I need to do other ...
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24 views

Interpretation of alpha1 versus alpha2, error correction model

I am looking at the Vector Error Correction model, and having trouble with deciphering how to interpret (beyond "it is the speed of adjustment") actual results estimated. Here's a VECM: $\Delta Y_i ...
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In Cointegration, adf test or for VAR models. What makes difference in having trend + Constant, Constant alone, and non

In Cointegration, adf test or for VAR models. What makes difference in having trend + Constant, Constant alone, and non. in below link http://www.econ.uiuc.edu/~econ508/R/e-ta8_R.html It said ...
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1answer
425 views

Statsmodels VECM - Predicting out-of-sample

After fitting a VECM model, I would like to study its out-of-sample behavior but haven't been able to find a way to do it. More precisely, given X_train and ...
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35 views

Like Correlation do we have any measurements in Cointegration

i am new to VEC model We can test for Cointegration using johansen test but like Correlation do we have any measurements or gauge for good Cointergations , Like we say 90% correlation is good and 50%...
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358 views

Panel VAR / Panel VECM

I have an unbalanced panel with N=800 and T=72 (quarterly frequency). After conducting some unit root tests, all reject the null that all panels are not stationary (the alternative is that at least ...
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31 views

Help with Error Correction Terms (ECTs)?

I have some questions about the correction and error terms of the VECM model. I have a system with 10 variables and 3 vectors of cointegration according to the Johansen test. For each dependent ...
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103 views

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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31 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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313 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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38 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 ...