Statistical Analysis Stack Exchange
Statistical Analysis Stack Exchange

Questions tagged [ecm]

Error Correction Model

Error Correction Model (Wikipedia page)

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Does using difference transformation lead to bias? (Levels vs differences regression)

Consider the model estimated in levels (also assume this is the true population model): $$y_t = x_t\beta + e_t$$ As usual we have the dependent variable $y$, independent $x$, the error term $e$, and the to be estimated parameter $\beta$. Take away…
Dole
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Help understanding how the cointegration equation for VECM models are derived

I am learning about Vector Error Correction Models from Sean Becketti's "Introduction to Time Series using Stata". While I know how to run the Stata commands to estimate the VECM, I have no idea why the author is interpreting certain components of…
SidtheKid
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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 that equation would be a constant and explain the…
Tobias Emil
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Sign of adjustment coefficient of error correction term in VECM

I am modelling the relationship between stock prices and 6 macroeconomic variables using Vector Error Correction Model(VECM). It turns out that 6 out of seven adjustment coefficient are positive. Does this imply divergence? What could be the reason…
Mansur
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Analysis after Gregory-Hansen cointegration test

I have two time series which fail E-G cointegration test over the whole sample, but G-H cointegration test indicates the presence of cointegration when regime shift is allowed. Can I set up a dummy taking on value 0 before and 1 after the regime…
user70497
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ARDL/Error Correction Model: long vs. short run, restricted vs. unrestricted

I have a few questions about unrestricted error correction models. The UECM for a model where $Y$ is the dependent variable and $x$ is the sole independent variable is given by $$ \Delta Y_{t}=\alpha_{0}+\sum_{n=1}^{N}\beta_1\Delta…
SidtheKid
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Getting understand error correction model

I have several intuitive problems with error correction model. I will write below how I understand derivation of ECM model with my queries. Let $I(y_t)=I(X_t)=1$ and consider model : $$y_t=\alpha_0+\alpha_1y_{t-1}+\beta_0x_t+\beta_1x_{t-1}+u_t$$ Now…
John
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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 problem is that one of the time series has a…
KJA
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Engle Granger Error Correction Model - Normality, heteroskedasticity and Autocorrelation tests

I'm building an Error Correction Model using the Engle-Granger approach with the following interest rates data: Observations: 230 Periodicity: Monthly I have the following model: $$\Delta R_t = \sum_{i=1}^{p}\beta_t \Delta R_{t-i} +…
Quant_Penguin
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Interaction term in error correction model using

I am having difficulty understanding how to insert an interaction term into my error correction model. I have a panel data across 30 countries over 15 years. I know that the basic error correction model should include (a) the lagged dependent…
user2298759
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Is there any reason why one cannot create a time series from variables calculated from regressions on cross sections?

I am asking this question as the textbooks that I have don't specifically address the topic of creating a time series. If you have an answer, or even links to articles that I can research myself, it would be much appreciated. Suppose you had thirty…
Alexander Whyte
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ECM with fixed effects in a long-run equation

I would like to make a simple estimate of regional GDP. Predicted values of GDP on country level are available, so I was thinking about using these values and create a simple model. Simple linear regression would assume that the reliationship…
damian
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Interpretation of the Error Correction Term as time to correct

I have the following question that I haven't managed to find a satisfying answer. In an Error Correction Model (assuming that all its assumptions hold): $$\Delta y_{t} = a + b(y_{t-1}-\hat c-\hat kx_{t-1}) + c\Delta y_{t-1} + d\Delta x_{t-1}+…
e.mal
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Panel: Estimating cointegrating vector within ECM to test cointegration

In time-series analysis we were taught that one can test for cointegration by estimating an error correction model and testing whether the coefficient estimated to the deviation of the equilibrium level is significantly smaller than zero. Consider…
Wecon
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Estimation of a VECM model

I am attending a time series econometrics course and I am working on VECM models. We have learnt that to estimate a VECM model we should use Engle-Granger two-step procedure but I have not understood why checking for the significance of the…
PhDing
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