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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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Heteroscedasticity in VECM residuals: consequences and solution

Does anyone know the consequences of heteroscedasticity in VECM residuals? For impulse reponse, standard errors and so on?
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Impulse response for a VECM

I have used MatLAB for calculating generalized impulse response functions (see https://se.mathworks.com/help/econ/vecm.irf.html#mw_ef2bb791-5500-4738-b2de-49df99f3a990_sep_shared-mw_85c3ba24-ff12-4a90-...
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Heteroscedastic residuals of a VECM estimated by MLE

I have estimated an VEC model in Matlab, and it turns out the residuals are heteroscedastic. Now, does anyone know how to apply HAC errors to a VEC Model in Matlab? Alternatively, given the model is ...
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What test for a structural break in a VEC model?

Does anyone know which test to use for structural break in VEC model? I thought to use a CUSUM AND CUSUM-sq, but it seems like CUSUM-sq always return results outside the critical bounds. Any help ...
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Estimating VECM with Exogenous variable

I'm currently working on a project that requires estimating a Vector Error Correction Model (VECM), potentially extending to a structural VECM, that incorporates at least one exogenous variable. The ...
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Depicting a Single Equation Error Correction Model in Matrix / Vector notation?

I am trying to express the following single equation error correction model in matrix / vector notation. The original model is: $ \Delta Y = y_{t-1} \delta_0 + \sum_{i=1}^{k}z_{i,t-1} \delta_k + \...
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Interpret $R^2$ for a long-run equilibrium model (2 stage OLS)

I've built an error correction model using two stage OLS - first an OLS on the cointegrated I(1) variables in levels to get the cointegration coefficients, and then an ARDL in differences with the ...
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VAR regression between I(1) and I(0)

I am considering two time series and I would like to to a VAR regression between them. The ADF test rejected stationarity in only one of them, so the time series would be I(0) and I(1). I understand ...
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VMA to VECM representation

I'm doing research at the moment and for estimation purposes I need to convert a VMA (equation 9.2.2 in the attached picture) to a VECM model (9.2.1) in picture; does anyone know how to make this ...
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Regression variables integrated of orders I(0), I(1) and I(2)

I am working on a model with 4 variables, and these variables are integrated I(0) and I(1), but one variable is integrated I(2). What is the model suitable for this data?
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Cointegration and trend stationarity

Cointegration relationship is typically studied with integrated time series (that is, difference stationary time series) and when they have the same order of integration, it is possible that you find ...
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Can I transform two log variables into one using multiplication in VECM time series model?

I performed a Vector error correction model using Tourist Arrivals as a dependent Variable and Real GDP, Public Road Transport operated distance and Public Railway Transport operated distance as ...
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The eigen values of Johansen's cointegration procedure

Assume a K dimension VECM model for cointegration analysis $$\Delta y_t=\Pi y_{t-1}+\Gamma_1\Delta y_{t-1}+...+\Gamma_{p-1}\Delta y_{t-p+1}+u_t$$ The Johansen approach for maximum eigenvalue test or ...
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Interpreting the VECM: which variable corrects towards which one?

I am trying to understand the vector-autoregressive error correction model, but I am having a hard time understanding the error correction part. Imagine that we have a VAR(1) model of 2 dimensions: $$\...
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VECM model unable to predict approximately but able to learn the pattern

In the below image VECM model has learnt the pattern but did not predict properly there is a difference in actual and prediction Have used the below dataset to predict the meanpressure:- https://www....
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Common way to forecast multivariate time series where components are restricted by an inequality?

Let's say we have a multivariate time series that we would like to forecast future values of: $Z_t = (X_t, Y_t)$ where $X_t$ and $Y_t$ are real-valued time series and constrained by the inequality $...
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Dynamic adjustment equations coefficients using VECM from statsmodels

I am looking to replicate a study that was conducted on running a VECM to assess the short- and long-term impacts of media on sales and brand health metrics (consideration & awareness). Using <...
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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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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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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: 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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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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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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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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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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