Questions tagged [vector-error-correction-model]
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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Interpreting an estimated bivariate VECM
I have used the tsDyn package in R to estimate a VEC model for the data in the graph, and I am unsure about my interpretation of the output.
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VECM predict gives forecasting results that lag behind actual data
I am using Python's statsmodels.tsa.vector_ar.vecm.VECM to estimate VECM models and generate pseudo out-of-sample forecasts with the .predict() function to compare with actual data.
For example, I ...
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Johansen cointegration, VAR, VECM
I do have a question regarding Johansen's cointegration, VAR, and VECM model estimation. I would like to analyze the relationship between two variables using these methods. My dataset consists of 4 ...
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Interpreting VECM results
Can somebody help me interpreting this results for VECM? (VAR.select function chose 12 (or 1 and 2) as the appropriate number of lags, so I chose 11 lags)
How can I ...
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Interpretation of large error correction terms in VECM
I've estimated a VECM model on four variable.
my results are
Unit root test (ADF): all variables are I(1)
Johansen rank test suggests estimating VECM with a trend and 1 cointegrating vector
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Can I compare the forecasting performance of two models VECM and VAR
Can I compare the forecasting performance of two models VECM and VAR with the same dataset, if in the case of VECM I have some of the variables I(1) at the level, and others are stationary?
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VECM model with one I(0) and seven I(1) variables. How to implement it?
I have data with one I(0) and seven I(1) variables. I found by Johansen procedure that maximum cointegration rank is 1 (applied to I(1) variables).
Now I try to understand, how can i add I(0) variable ...
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Unit root test and cointegration
maybe someone can help me with my data.
I analyse how macroeconomic indicators affect stock index. For this analysis I prefer VAR model.In my case data of all variables are non-stationary - I have ...
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Can I use VECM, GARCH and HAR-RV for forecasting of carbon price? [closed]
Can I use VECM, GARCH and HAR-RV for forecasting of carbon price?
I'm not sure the assumptions of the models don't contradict each other.
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Practical guide or book for time series analysis [duplicate]
I am writing a thesis now, and I ran into a problem - I understand the basic concepts of time series econometrics and what models and tests exist, what exactly they check, but I can not find good ...
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Cointegration $p$-value and VECM loading forces show low correlation
After having read about VEC model (VECM), I thought that cointegration and VECM loading forces were strongly, not to say numerically correlated. I thought that the more we have cointegration, the less ...
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VECM fitting : MLE from scratch and statmodel give very different beta and reverting forces
I'm trying to fit a VECM model with MLE estimation for N=2, and compare the result to the VECM statmodel implementation. When running both with random cointegrated ...
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VECM: alpha is a 0-vector? cointegration rank = $k$ even though $X_t$ is I(1)?
I'm trying to wrap my head around the VECM model by doing some simple examples. In this exercise I'm taking the log prices of 2 assets, A and B. These prices are clearly not stationary, for example <...
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Forecasting VECM model ( Python and R )
I'm working on an academic project. The aim is to forecast some cointegrated time series.
I retrieved the data from 2008 to 2018 of the observations of 30 time series.
I performed a unit-root test to ...
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Prediction from VECM in python using external regressors
Is it possible to get out of sample forecasts using future values of regressors with the Vector Error Correction Model(VECM) estimation in statsmodels, Python? For example, I have the code
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VECM and ARDL, advice which one to use
Asking for advice!
I got one comment on a paper I am writing saying that VAR/VECM can be used only if the variables are stationary at first difference. While for mixed integration, ARDL is suggested.
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Outlier dummy variables in differenced or level VECM?
I am working on my master thesis. I want to model a VECM but there appears to be extreme outliers in the data. My question is, should i model the outlier dummy variables on level and use it in the VAR(...
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How to deal with non normality of residuals in VECM?
Does anyone know how to handle non normality of residuals in VECM? I have tried transforming the data into log, exp, and Box-cox but nothing has changed. Any suggestion will do. Thank you.
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How to deal with VECM with a different structural break for each time series?
I am modelling a VECM with structural breaks. I am following Joyeux (2007) way of doing it with dummy variables, including the different trace and eigenvalue stats for cointegration with structural ...
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Specifying deterministic terms in a VECM
In looking for guidance on the specification of the deterministic terms in a VECM, I came across this tutorial on VECMs in R, where the author makes the following ...
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Forecasting accuracy of VECM using train and test
I am forecasting using VECM and I plan to do it on train and test split data. My data is 132 monthly observations. My VECM is lag 3 with unrestricted constant. All diagnostic test are passed.
I plan ...
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Interpretation of VECM results when the variables are swapped as response variable
I have two variables, which is Tomato farmgate price and retail price. When I use VECM, both variables are endogenous. However, there can still be a response variable (ex. when you put the variable ...
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VECM and heteroskedasticity
So, I am trying to run a regression that requires me to log and take the first differences of it to render stationary. That is why I am using VECM.
I ran the diagnostic tests, and everything is fine ...
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Specify Vector Error Correction Model with different lagged effects?
I'm fitting a Vector Error Correction Model. The general form is like this:
$$\Delta y_t = A_0 + \sum_{i=1}^{t-1} A_1 \Delta y_{t-i} + \lambda EC_t + \nu_t$$
In which $EC_t$ is the error correction ...
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AIC and SC tend to select the maximum lag for VECM
I am building a VAR modell in order to discover how oil price shocks and 3 macroeconomic control variables (gdp_growth, Interest rate, exchange rate) influence core and headline inflation in the USA. ...
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Interpretation of the trend variable in the cointegrating equation of VECM (VECM Case 4: Unrestricted trend)
I am doing VECM of prices of meat. This one result confuses me. This one shows that P_F and P_R has a positive relationship. This can be interpreted at 1% of P_R is 0.18% of P_F. However it also shows ...
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Johansen test - r studio , "ect1" "ect2" etc
Can someone explain to me the result of this test? I am not sure what the ect1, ect2, etc. mean.
Output
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Dynamic contributions in error correction models
The following is an extract of this IMF paper (p.26 of the pdf file)
Let's assume the following error-correction model :
$\Delta p_{t}=\sum_{i=1}^{k}\gamma_{p,i}\Delta p_{t-i} +
> \sum_{i=1}^{k}\...
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Known future values when forecasting using VECM
I want to fit a VECM model to do forecasting. For one of the variable in the model I want to supply my guess of the future values and let the model use these information when predicting the other ...
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Johansen cointegration test for ECM model
I'm dealing with the Johansen cointegration test before running an ECM model.
I cannot figure out which type of test execute: with/without constant, with/without trend, ...
How can I choose the ...
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Interpreting VECM Intercept Term
I am testing the relationship between 2 prices over time that are cointegrated. For the next step I look at the results from a VECM process. When the intercept term is included in the calculation and ...
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Simulating from VECM to VAR in statsmodels
I need to simulate from a VECM in Python. My VECM doesn't have constants nor linear trends (this holds true for both inside and outside the cointegration matrix). However, the statsmodels VECM doesn't ...
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vector error correction model results
First i checked the cointegration using Johansen. After that i estimated a VECM model using both b_r and b_f as the left hand variable and it gave me different results. the error correction term are ...
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VAR(2) model how to convert it to VEC(2) model
I have the below VAR(2) model and I need to convert it into VEC representation how can I do it? Where can I find similar example or what is the way I should follow?
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Error Correction model and vector error correction model and their error correction terms
(1) What is the difference between these two ina bivariate variable? I know that VECM caters to more than one cointegrating vectors but equation wise what is difference between these two? Both uses ...
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Testing cointegration in a VECM with autocorrelation?
I have four I(1) (monthly) variables. AIC is used to determine the number of lags. A VECM is estimated by ML-method and the Eigevalues imply that there are two cointegrating vectors. Now the problem ...
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Johansen procedure shows cointegration r=1, but ect is not significant?
I have 6 variables, all of them I(1). I tested for cointegration and got a significant result for r=1, so I decided to estimate a VECM. The problem is now that the ECTs of the VECM are not significant....
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Eigenvalues of Johansen Trace Test
I'm currently taking a course in time series and have been struggling with understanding the Johansen trace test. Specifically, the calculation of the eigenvalues for the Likelihood ratio statistic. ...
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Johansen Cointegration Test at Levels or First Differences in a VAR Model
I have multiple variables that I am trying to perform a VAR model with, but all my variables are non-stationary at levels as they fail the Augmented Dickey Fuller test. Having taken the first ...
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VEC model to VAR model transformation in R
I need to transform my VEC model (function VECM() from tsDyn package) into VAR model to be able to estimate Granger causalities.
In the first step I need to estimate VEC model. In the second step I ...
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How to impose restrictions on VECM model in R?
Good afternoon!
I want to estimate VECM in R and I have a question. Consider an example. I want to estimate a 4-variable VECM model with restrictions:
$$
\begin{bmatrix}
\bigtriangleup x_t \\
...
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VECM in R: how to add differenced lags? [closed]
Good afternoon!
I want to estimate VECM in R and I have 2 questions:
For instance, I want to estimate a model (in vector form):
$$
\bigtriangleup y_t = \pi_1 y_{t-1} + \pi_2 y_{t-2} + A_1 \...
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Can second order differences stationary series be estimated via VECM model without considering support from economic theory?
Because some series contain negative raw data, and data is normalized by MinMax.
Can VECM be used after second-order difference where the series are stationary? If can, whether the number of lagged ...
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Cointegration equation from VECM with rank=1 is same as OLS result?
In Engle-Granger 2-step ECM model,
if there are cointegration relationships then OLS result(1st step) shows a long-run relationship between variables.
Short-run relationship is expressed by ECM(2nd ...
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Optimal lag length in VAR/VECM: IC or Residual test?
I read so many answers in here that I should use IC(information criteria) to determine the optimal lag length in VAR/VECM.
But also it is important to check the residual of VAR/VECM has no-...
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What is the difference between ECM and VECM?
From what I understood,
ECM is for two variables and apply OLS to estimate EC term and
VECM is for multi-variables (vector form) and apply VAR to estimate EC term.
But as I read other papers, I think ...
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Practical questions about cointegration test
I have a few questions about Johansen's cointegration test.
I learnd that all variables must have the same order of integration for cointegration test.
Suppose there are 5 variables for one is I(0) ...
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What is the speed of adjustment for two cointegrating vectors?
I have estimated a VECM model in EViews and using the Johansen test I obtained that there were cointegration vectors. The output for the short-run equation of VECM contains two error correction terms ...
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Including dummy variables in VECM using Oxmetrics
I've encountered a problem when doing rank test for an Vector Erro Correction Model using CATS. I'm looking at the relationship between the variables in the Purchasing Price Parity theory, especially ...
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What is the coefficient that shows whether there is a positive or negative relationship between variables in vector error correction models?
I am trying to estimate the long-run and short-run relationship between variables. Based on the Johansen cointegration analysis it was concluded, that there is one cointegrating relationship. The next ...
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