# 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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### 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....
1 vote
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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 ...
1 vote
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### How to approach insignificant coefficients in time series?

Let's say we have an ARIMA model. The series is stationary, autocorrelations significant etc. However, the p-values of the coefficients suggest that the coefficients are insignificant. Now, I've heard ...
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### Does a lower AIC imply better forecast RMSE for time series models?

In my application, I am using the VECM function of the tsDyn package in R to fit 4 I(1) processes. Using the Johansen's test, I have identified for 1 cointegrating relationship. I have made use of the ...
39 views

### 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 ...
50 views

### 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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### Simplified Version of the Error Correction Model

I have to solve an exercise on Error Correction Models and cointegration, but I'm having a bit of trouble in understanding what I should do. In the previous line, we have concluded that the two ...
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### What is the speed of adjustment for two cointegrating vectors?

I have estimated a VECM model in EViews and using Johansen test I obtained that there were cointegration vectors. The output for short-run equation of VECM contains two error correction terms and I ...
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### ADF test estimates -0.01 delta, but the p-values are less than 0.05

I am dealing with two datasets of Annual growth Production Cost, and Annual growth Inflation. A lot of problems have arisen, but the most annoying one is referred to integration. At first sight, both ...
1 vote
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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 ...
1 vote
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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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### Vector error correction and impulse-response functions only when error correction terms are negative?

I have used VEC models with two variables and have estimated impulse-response functions (IRFs)from them. I am testing two theories, and each variable is the dependent variable for a corresponding ...
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### Vector error correction models and order of integration

I am trying to estimate VEC models for three variables in different regions. So, using each region's data I am estimating a different VEC model. Mostly, series are I(1) and co-integrated. To have ...
54 views

### Why does the prediction of a VAR dgp diverge from the test set?

I'm working on a multivariate data set consisting in 44 observations (which have to be splitted: the first 34 observations are in the training set, the remaining ones in the testing set) of 9 ...
1 vote
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### Estimating cointegrating equations in VEC models

When using the Johansen MLE procedure to estimate a VEC model, is it true to say that the cointegrating equations are estimated simultaneously with the other parameters of the VEC model? Meaning ...
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### Include exogenous variable in both level and first-difference

I am wondering if I could include, in a VECM, exogenous variable in both level and first-difference, such as : $\Delta X_t = \alpha \beta^{'} X_{t-1} + \Delta X_{t-1} + Y_t + \Delta Y_t + U_t$ Is ...
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### Johansen test for cointegration - how to find model given test output?

Suppose we are working with three I(1) variables and that the result below is the Johansen cointegration test: Unrestricted Cointegration Rank Test (Trace) Hypothesized No. of CE(s) Eigenvalue Trace ...
1 vote
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### A VECM in logs or a ARDL in the first difference of logs?

Suppose I have a number of time series that appear to have exponential growth at similar rates, with errors I believe to be generally proportional to the level of the variable. I believe that one of ...
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1 vote
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### VECM - Impulse reponse function - statsmodels - AttributeError: 'lr_effects'

I am using statsmodels version '0.11.1'. I am trying to sum cumulative effects of using the impulse response function derived of a VECM, but I am getting an AttributeError regarding 'lr_effects'. As ...
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### Is logged data considered level data?

Hi I'm new to VECM/VAR models. I read that we can use VECM when data is non-stationary at level but some form of cointegration exists. By "level" does it mean it has to be the raw data? Or ...
1 vote
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### Good resource on ECMs/VECMs?

I am trying to understand ECMs and VECMs and what the relationship between a regression model with stationary residuals or time series errors. Is there a good website/book that goes into the ...