(EViews10): Estimate and Interpret VECM (2)
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- Опубліковано 4 сер 2024
- So, what do you understand by vector error correction model (VECM)? You may say any of the following: that it is a system having a vector of two or more variables that all the variables in a VECM are endogenous there are no exogenous variables VECM is constructed only if the variables are cointegrated cointegration implies evidence of a long-run relationship among the variables it is a restricted VAR model with cointegrating restrictions built into the specification constructed to examine long- and short-run dynamics of the cointegrated series restricts the long-run behaviour of endogenous variables to converge to their cointegrating relationships that the cointegrating term is known as the error correction term it is a representation of cointegrated VAR (courtesy of granger’s representation theorem) and that the resulting VAR from VECM representation has more efficient coefficient estimates. Also, note that VAR specified in differences is a mis-specification while VECM is obtained by differencing a VAR, hence losing a lag. So, you construct a VECM with a (p-1) lag lengths for all the variables in the system. These are the basic steps required to estimating a VECM. (1) series must be stationary (integrated of same order) (2) determine optimal lag length for the model (3) perform Johansen cointegration test (4) if there is no cointegration, estimate the unrestricted VAR model (5) but if there is cointegration, then specify the restricted VAR model (i.e. VECM). In this video, I show you the rudiments of the VECM specification. Kindly check my channel and playlist for all simple and exciting hands-on tutorials using EViews, Stata and Excel applications:
Here is the link to the ex21-1.wf1 dataset (EViews file) used for this tutorial (endeavour to have a Google account for easy accessibility): drive.google.com/drive/u/1/fo...
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Looking forwards to your video on how to posit restrictions in VECM modelling.
your videos are great, you explain everything very clearly and with a good mix of theory and how to do it in practice in Eviews. thank you very much!
U're welcome, Gab! 💕 😊
Thank you very much. So far, this is one of the best video on ADF, cointegration and VECM I have watched.
Glad it was helpful, Kojo!
Congratulations, great channel! Thank you for being so clear! You have my support.
Wow! Thanks for the positive feedback and support for my content. Deeply appreciated! May I know from where (location) you are reaching me?
@@CrunchEconometrix I am from Milan, Italy. And I did my studies in Frankfurt, Germany. It's a just while I got the passion for econometrics, so cool and useful.
@@SamWall93 Awesome!!! Kindly share my YT Channel link with your colleagues and academic community in Italy and Germany. They will find the content on my Channel very helpful...thanks!
Thank you for this clear presentation. Currently writing my undergrad dissertation and it is very helpful
Thanks for the positive feedback on my video, deeply appreciated! 💕 Kindly share my Channel link with your students and academic networks. May I know where you are reaching me from?
@@CrunchEconometrix I'm from England
oH my god!! I was in a real trouble in making a research assignment. You helped me so much, thank you.
You're very welcome, Tina!
Thank you so much professor, amazing explaination. You have made things so easy for me. Please continue posting videos on empirical econometrics, you are too good. Cheers and godspeed
SuperReddevil23 Hahahaha, u're welcome SuperReddev (but I'm a Super bright RedGunner😊)...and please tell others about my UA-cam channel🥂
Will surely do. One other question i wanted to ask you is that what is the implication of a statistically insignificant error correction term ?
SuperReddevil23 I will interpret it that to mean the evidence of a long-run equilibrium is not significant. You can also do a little Google search on it.
ok thanks
Thank you so much for the videos!!! Extremely helpful!
Thanks for the positive feedback, Huiru. Deeply appreciated! 💕 May I know from where (location) you are reaching me?
@@CrunchEconometrix Arkansas :) I'm a phd student of University of Arkansas.
@@huiruchen5664 Good to hear, Huiru! 💕 Kindly spread the word about my videos to your friends, students and academic community in Arkansas. Thanks! 😊
@@CrunchEconometrix Will do! Thanks again for your videos!
U r perfect at explaining everything... U made my day
Glad to hear that, Deepty!
your videos are very helpful ...thanks
Glad you like them, Preeti...thanks!
I am really thankful to you. Tomorrow, I have to given a presentation in zoom about inflation and economic growth in Bangladesh.I use all the econometric method in eviews and your videos are really helpful for me.your interpretation's are very helpful. I have several papers I want to work with you .
Great 👍...let me know what you have in mind but I have strict rules about collaboration (based on past experiences). If you have a Scopus publication send to cruncheconometrix@gmail.com for evaluation...that's one of my conditions. Thanks and take care.
Thank you really you clarify my problem on ECM interpretation
Thanks for the positive feedback, Muhd. Deeply appreciated! 💕 May I know from where (location) you are reaching me?
Thank you very much... from Namibia
My pleasure, Glenn! Thanks for the encouraging feedback, deeply appreciated!
Thank you, Mama
You are so welcome, Dr. Tsovini! 🙏🥰
Respected Madam, I have Learnt a lot from your valuable
videos specially in VAR environment. I am preparing electricity demand forecast
using conventional multiple regression analysis since long. Now I am shifting
to VAR model, I have gone through all steps
1.
lag selection criteria for each variable
2.
unit root test for each variable
3.
found I (1) Cointegration
4.
Combined lag selection criteria found to be I (1).
5.
Johansen cointegration showed one integrating
equation with using 1 Lag
6.
Then I ran VECM with 1 lag
7.
Speed of adjustment come negative and
significant
8.
No serial correlation, no heteroskedasticity,
normality test is ok
9.
It also passed cusm stability test
My VECM model is statistically ok.
In Johansen Equation, we interpret it by changing the
sign, while after changing the sign results are according to econometric
relationships e.g. if price is increased, the consumption will decrease. My
question is that in the VECM Long Term equation. the results are not coming
according to econometric theory i.e. Price elasticity is not negative. so, is
it ok? But in short Term Model in VECM the electricity elasticity is coming to
negative.
My next question is, now i have
computed both Long run and short run equation from the VECM model and, I can
compute the residuals ECT t-1 from the long-term equation and also,
I know the coefficient of ECT i.e. speed of adjustment
My data was from 1985 to 2019 and
my independent variables are total GDP, real price of domestic category
electricity and population of Pakistan and my target variable is domestic
electricity consumption. I have taken
all these variables in logarithmic form.
now my request is how I can get the forecast of my target variables for
my next 10 years while I can project the independent variables like GDP, price
and population for next 10 years. but how can I make projection of ECT t-1
for next 10 years by transforming this short run equation in a form that
I can easily calculate forecast of my target variables. currently i am facing the
issue that in equation my target variable is in differenced form which is the
form of VECM equation.
In OLS regression analysis after
finding out the elasticity of the best equation we can easily transform this
equation into
Electricity Sale = (1 + Growth Rate GDP) GDP
elasticity x (1 + Growth Rate Price) Price
elasticity x (1 + Growth Rate Lag
sale) Lag elasticity
Is there some method to transform
VECM equation like the above-mentioned equation to compute the forecast?
Can you tell me if
there is any option in EVIEWS that it can give us forecast for the period
beyond the data if we provide to EVIEW the projection of independent variables?
Normally this projection work doing in excel.
Is it possible can
you make a video on VECM forecast for next 10 years to understand the concept?
Best regards
Hi Bilal, your query is TOO LONG. Kindly go straight to the point. Thanks.
Hello m'am. One question: In the short-run part, the CointEq1 of the Error Correction, If I have a value of 0.0783 where you have -0.067 in min 02:00, is this correct? I read that the value should be between -1 and 0 but I don't know if this is correct. The long-run coefficients are significative, but this 0.0783 it's not.
This 0.0783 is placed where you have the -0.067 in the short-run equation.
Thank you very much m'am.
Best regards!!!
Really helpful for my thesis....thank you sooo much
You are welcome, Sadaf! 🙏 ❤️
Thank god its not heteroskedastic
I watched most of the videos from CrnchEconometrix and found very much useful to the researchers in secondary data. Now i am interested in structural VAR estimation. I request you to make one video about i, if possible.
Thanks for the suggestion, Jhabindra. Appreciated!
1. In the long run part of ECT model, the coefficients of regressors must be interpreted in reverse signs. 2. When we run VECM practically, reduce one lag for D(Endogenous).
Yes.
Thanks sister!!
You're welcome, Gidey...please share with your students and colleagues! :)
Love this!!!
Thanks for the feedback, Tri! 💕 Please share my videos with your friends and academic community.
Of course I will. Your explaination is very easy to understand, compared to the text-book, like Brooks and Gujarati.
@@trisutrisnoadri980 Hahahaha, please don't say that, Tri. I'm only teaching the little I know...keep watching, keep sharing! 💕 😊
Hello, thank you for the videos. Are we not supposed to change the signs for the long-run model? So should it not be (+) 3.63? Or do we only do that in the Johansen part? I was told to flip the signs in the long run part.
Hi Owen, please watch my video on Johansen Cointegration Test. It answers your question. Thanks
Thank you for your explanation, I really appreciate it!
Further, I want to ask, what if the Cointegration Equation is not significant? Does it mean that both in the long run and short run/only short-run have no relationship between the dependent and independent variables?
Hi Utama, if that is the case then the long run relationship is statistically not significant.
Thank you so much ma for a good presentation. In a case where there are two cointegrating equations (that is none and at most 1 are asterisked) , do we interpret the D(...)(-1) or the D(...)(-2) of each variables for the VEC estimates?
Also following the video preceding this one, in a case where we have the variables stationery at first difference but different max-lag lengths for the unit root test, is it still acceptable to use or not acceptable to use if the are different unit root lag lengths for the variables?
Hi Praise, thanks for the encouraging feedback. Deeply appreciated! Follow the guide and explanations. Use 1 cointegrating equation. Same lag length is used for all variables.
Thank you very much for your videos. Why did you interpret the ECT coefficient term from the VECM differently (as a log-log rather than as a log, I guess) from the other coefficients? It was a lapsus-linguae?
That's the form for interpreting the ECT.
Thank you very much for the class, please how do we get the durbin watson and p-value for each variables on the e-view?
Because authors provide these info in the data presentation.
Thanks for your encouraging feedback...deeply appreciated. EViews displays the Durbin Watson statistic in most its results...as for p-values, you may have to use the t-stat to determine the statistical significance of the coefficient.
Hello Prof, many thanks for the youtube lectures. I have a question please: my step 1 and 3 are all met but i have two integrating equations after doing step 3. I am a bit confused, shouldn't i have one cointegrating equation? many times i see one cointegrating equation. what do i do next? below text is copied from the table in step 3.
Trace test indicates 2 cointegrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Keep it simple, use 1 CE unless you can interpret your results with 2 CEs.
hi professor, thank you for the great video, it really helped, ill be sure to share your channel. I have a question regarding the optimal lag for the VECM model. my optimal lag is 7. does this mean for the VECM my optimal lag would be 6 (p - 1). If so which short-run dependent variable lag should I use. aka d(GDP(1)). D(GDP(2), D(GDP(3) etc..
Hi there, yes use 6 lags for the VECM. Follow the guide as explained in the clip on how to proceed.
Thank you, Ma for the videos. It is possible for a VECM to be unstable when all the variables are I(1)?
Hi Sherif, yes it is possible.
I LOVE U
Great video. Loved it. Got one question just to be sure. You described the lambda (speed of adjustment) and its meaning, but no mention as to its sign. But then noticed that in your example it was negative. Must it be negative to have some meaning? What happens when it's positive?
Hi Douglas, I appreciate the positive feedback. Deeply appreciated. You skipped the prerequisite videos that contained the information you seek. Kindly watch them. But note that theoretically the sign must be negative. if positive it implies there is no convergence to long-run equilibrium and the model becomes explosive. Thanks.
thank you so much! your way of explaining has been such a great help.
for my cointegration test- trace stat indicates 1 and max indicates 0. following the trace stat result i went ahead and estimated a VECM on lag 1 (i.e.2-1) .
while cointegrating eq coefficients are statistically significant, i find ECT and all 6 variables' coefficients are statistically insignificant in the error correction estimation.
1.how to interoperate this?
2. do i go ahead and alternatively estimate unrestricted VAR instead (according to max stat result of no cointegration).
Hi there, thanks for the encouraging words and feedback. Deeply appreciated! Try option 2 and see what the outcome is.
In my cointegrating equation I also have '@Trend(71)' - what does this mean or how should it be interpreted? Thank you.
Hi Ellie, I have no idea what that is. You may need to seek further clarity online.
Thank for this inestimable lecture it is very precise and timely.
If the long run relationship is to be discussed upon, is it the normalized Johansen cointegration that will be adopted or the lag ECT cointegration equation?
Hi Simeon, I'm not quite clear about your query but the Normalization captures the long-run content of the model.
Thank You for your reply
Now my specific questions are as follows
Q # 1
If in Johanson test lag length criteria tells us lag = p= 1 . So for VECM as you said in your vedio take lag as ( p-1). What should I do
Q. # 2
I have computed the VECM conventional equation with 4 variables like electricity sales, GDP, electricity real price, population, which is also pasted below. Kindly guide me with a video or with some other means, how I can transform this equation to compute the forecast of the electricity sales. The target variable is LDOM8519 electricity sales which is in differenced form.
∆ LDOM8519t = 0.611109 + 0.185012 ∆ LDOM8519t-1 + 0.5014 ∆ LGDPTOT8519(t-1) - 0.014722 ∆LDOMRP8519t-1 -24.51419 ∆ LPOP8519t-1 - 0.48071 ect(t-1
)
Hi Bilal, my responses:
Q1: In this case, use 1 lag since VECM cannot be estimated as a static model.
Q2: My videos on "forecast error variance decomposition" will be helpful.
Thanks.
thank you for your video, can i ask u something, i still confused about how many max lag i should take. If i have annual data, should i take 1 max. lag?
Hi Tante, nothing to be confused about. If you have sufficient time-span, use 2 to 4 maxlags. But better still, you should watch my video on "Optimal Lag Selection" for more information. Please, may I know from where (location) you are reaching me?
Great videos on VECM. However, there is a clarification I seek. In economics, whether in the short run or the long run an increase in GDP should lead to a rise in PDI (personal disposable income). Whereas, this VECM model is showing a negative relatiopship i.e. a rise in GDP results in a decrease in PDI. Could you please explain this? Or was your attempt more to show the econometrric/statistics side of VECM rather than economic.
Hi Sher, I have responded to you on this on a another thread.
Hi, really appreciate this video! How do we know which of the variables are cointegrated with the dependent variable? or am I missing/misunderstanding something?
Hi Jamie, kindly watch the clip again. Well explained. Thanks
Great tutorial on VECM. Only one query, the model is showing that in the long run, a 1% change in GDP is associated with 0.099% decrease in PDI. While statistically, the model is appropriate. However, in economics, a rise in GDP in the long run or the short run should result in an increase in personal disposable income (PDI), rather than a decrease in PDI. Can you please comment on this. It will help a lot.
Hi Sher, results are a function of several factors: variables, scope, and technique used. Besides, there are tons of empirical findings that contradict a priori expectations. Yours could be one of such.
Thank you for your good work. Please, I have a time series, all are I(1) and cointegrated but my optimal lag is 1, can I still go on and run VECM given p-1 condition
Hi Dayo, this is not a problem since VECM cannot be a static model but must contain lags of the regressors. All you have to do is to maintain the 1 lag and put a footnote to explain why....and thanks for the kind words on my UA-cam Channel. Humbly appreciated!
Thankyou you queen
You are welcome, Russell 🙏🥰
How do you handle non-normal residuals as shown by JB test?
Hi Sharon, I'll give my usual response. I don't. I'm more concerned about serial correlation and heteroscedasticity. Once those are good, I downplay non-normality. May I know from where (location) you are reaching me?
Thank you for the video. So all the steps are done on stationary variables, even cointegration test?
I have created d(ln_variable) for transformation purposes and further on used d(ln_variables). But should cointegration test be done with d(ln_variables) or level variables?
Hi Ksenija, kindly watch my video on Johansen Cointegration Test. Well explained, thanks.
Dear ADELEYE, would you please answer these two queries?
(1) In my model all variables (both IDV & DV) are cointegrated at I(1). Thus I used VECM. While running varsoc , lag one [1] is suggested by all criteria. Now, while checking cointegration, what lag should I use? one or two? And what lag should I use in estimating vecm?
(2) In my other model, cointegration exists but while running ecm error correction term is found insignificant, in this situation what should I do?
Hi Chinta, for (1) I gave clear explanations. Kindly watch my VECM videos again. For (2), simply interpret your results. There is a long-run relationship (cointegration) but reversion to long-run equilibrium (EECM) is not statistically significant. Thanks.
I have some issues about this model..
1.Is it necessary to include the ECM equation (raw equation,not computed one) in my article
?
2. Though my speed of adjustment is negative but it is statistically insignificant ( p value is higher than .05) ,is it a matter of concern?
3.Relevance of Macro Economic factors for the Indian Stock Market
by Aman Srivastava
(2010) order the equation in another way, was it wrong?
Hi Abdullah, I've read your queries over and over again I still don't understand what you mean?
Please What do I do if I conduct johannsen cointegration test for non-stationary series and r=n, that is full rank. should i just go on and conduct the VECM? Thanks
Napari, kindly watch the video on Johansen Cointegration, before this video to get a better understanding on what to do before performing a VECM.
Thank you very much for the videos!! Is it a problem because in my model, the probabilities are less than 5% level so there is serial correlation and on normality all components showed a high prob value hence are distributed normally however the total shows that residuals are not normally distributed. And on heteroskedasticity the prob value is 0.44 so the model is not heteroskedastic. So what should i do or its fine like that?
Takunda, correct the model for serial correlation. Estimate the model at higher-order lags.
@@CrunchEconometrix Thank you, much appreciated!! I used 6 lags for serial correlation only and starting from the 2nd lag up to the 6th, the model is now showing that there is No serial correlation. However, i wanted to know is it not a problem because from Var lag order selection criteria i was using 2 lags but i now change them to 6 lags on residual tests
No, it's not. Put a note note in the text explaining what you did about the diagnostics.
I have a question. if Granger test shows that there's no casuality relationship between two variables then do we have to stop the research?
Báo, not at all.
Hi again . 1. Is it possible to run Cointegration test using lag order 1 to 2 and VECM with lag order of 1. The different selection criterion suggested lag 1 & lag 2 for the model.
You have to stick with a selection criteria and use its optimal lag.
good morning Dr. If your VECM result has more than one lag, do you consider all the lags or only the lag one while interpreting your result?
Hi Kenechukwu, interpret all significant lags.
Morning Prof, may i know Error Correction Term (ECT) stand for any used?
With it be same term to use for mine any other VECM analysis test??
Hi Eleni, there's a lot to read up about regarding the ECT. Kindly get any econometrics textbook and other online resources. Thanks.
Mam if we found 3 cointegrating equations, then while running vecm, should we enter 3 or 1 in rank option? If i put one, will it make any difference. Or if i put 3 then how to interpret three cointegrating equations?
Waleed, I mentioned that you keep it simple and use 1 CE.
a lot of thank
You are welcome, Yade!
How do you proceed when you obtain non-uniform results during johansen cointegration test i.e you find that there is no cointegration under trace stats but there is cointegration under max eigen value? will you estimate a VAR or VECM?
Hi Dennis, I mentioned in my video on Johansen Cointegration Test that researchers take decision when the results conflict which guides subsequent approach.
Thanks.
Dear teacher, is there a heteroskedasticity test like that in Stata as well? Also, you have chosen the (No-Cross Terms) option in your test. There is the (With cross terms) option too. Would you kindly explain when should we use each of those two options?
Hi Revolta, you can do further online readings on both concepts. Tx
Thank for your video 😍 I have a question. If there is serial correlation or the residuals are not normally distributed, what would we do? Can we do anything to fix the model?
Hi MooMoo, there are several measures you can deplo: readjust the lags, change regressors etc and re-estimate the model.
Hello, may I know how to estimate the unrestricted var model? Because from johansen cointegration test, I got no cointegration.
Hi Ismashasya, watch my videos on VAR and follow my guide. Please may I know from where (location) you are reaching me?
hi , you said "a percentage change in pce is associated with 0.44 % increase in pdi on average ceteris paribus in the short run" but what you mean with change in pci increase or decrease ??
What are you referring to exactly?
coefficient values shows e (t-1) values in the running model as you hove shown after performing VECM ?. If it is significant and negative it means there is long run relationship exist.
Yes
Hi Bosede, I just want to find out if the sign in the VECM output matters?
Hi Zama, I will say it does because you have a priori expectations for the signs and significance of the coefficients. May I know from where (location) you are reaching me?
Ma'am, why did we take t-1 subscript for the ECT model, not t minus anything else
Srishti, that's the way the ECT is specified. I suggest that you scour the literature for detailed explanation about the ECT. Thanks.
please how do we interpret VECM with 2 cointagrations equations? which equation to choose and how to interpret variable with1.000
Hi William, as explained in my VECM and Johansen cointegration test videos, keep it simple by using 1 CE except you are on top of your interpretation then you can use more than 1 CE....I still use only 1 CE regardless of if the JCT yields more than 1.
Hello Prof, how can I solve the problem of heteroskedasticity and autocorrelation in VECM?
Re-estimate the model using higher-order lags.
Hi, what if we came all the steps correctly but then we have nonnormal residuals and heteroskedasticity? I appreciate if you help with it. regards
Hi Kazemi, there's no straight answer to your query since you've not estimated any model. But some corrective measure may require that you simulate several functional forms of the model, drop a variable and replace with closer proxies etc
Dear Madam, thanks for your effort and explanation, my question is can i use pedroni and kao for panel data instead of using johansen ???
Yes, you can. Johansen is NOT applicable to panel data. Kindly watch my videos on panel ARDL. Thanks.
Thanks for the very useful video.
I was wondering if we can use Granger causality and VECM for the variables which are stationary at their level?
Reza, you have muddled up this query. You can't do VECM with level-stationary variables but Granger causality can be done regardless of the the level of integration of the series.
Now, how can I measure the long run causality? And, what should I do with them? Simple regression?
@@rezagod7951 Watch my videos on "VECM and Causality Checks". Well-explained and practice along with your data.
How to do if there are evidence of heteroscedasticity and the residuals are not normaly distributed in the model? And i have annual data with lag 1.
Hi Mouanguissa, you can explore a combination of measures: use logs, estimate with the "robust" option, change regressors etc. May I know from where (location) you are reaching me?
Hi. Thank you so much for your assistance. I have been following your tutorial with no problem until I got to the part where I need to run the White Heteroskedasticity Test. Eviews is not responding and just gives me an error message saying: Positive or non-negative argument to function expected. Then the output I get from Eviews is gibberish in a way. Would you be able to advise what to do? I notice that when I run it with optimal lags of 1 (even though my optimal lags are 6 per the AIC) I don't have this problem.
Hi Khanya, then I advise you estimate with 1 lag. May I know from where (location) you are reaching me?
@@CrunchEconometrix from south africa. Thanks so much for your response :)
@@Kndzu Awesome, Khanya! Please spread the word about my UA-cam Channel to your friends, students and colleagues in South Africa for awareness. Thanks 😊.
@@CrunchEconometrix I already am. Thanks again:)
Hi Bosede. I am in need of your assistance again. I am running a VECM for my study and it appears the data has many outliers. To deal with this, my plan is to add dummy variables.
Would you mind advising if there is any best practice on how to decide where to add dummy variables?
Thank u so much as u have explained the concept very well. I have a query that my vecm is not fitted in residual diagnosis. There is no autocorrelation but rest two conditions are not met. What can I do ? Kindly help me out.
Hi Nutan, re-estimate the model at higher-order lags.
How do you know whether it is a significant relationship or not
From the t-stat. You can compute that.
Thank you very much for your lessons! It is incredible and very helpful for me!
Also, I would very much like to clarify a few points.
Please tell me what we should do if after Lag Length Criteria and Lag Exclusion Test my lag intervals are 1 1 4 4 7 7? How exactly can I reduce these intervals by 1 lag for the VECM?
In this case, I would also like to ask what exactly the number of lags I should use for the LM-test (if lag intervals are 1 1 4 4 7 7)?
Thank you very much in advance for your answer!
Hi Olesia, kindly watch the clip again and follow the guides shown. Do same for the video on diagnostics. Thanks.
Thank you very much!!
Hello professor, may I just ask one more thing regarding your model? is the ECT also the same for all target variables? Like, for example, is if i choose D(LNPCE) instead as a target variable?
No. If you read the textbooks and published papers you will see that every target variable has its own ECT in its VECM.
No. If you read the textbooks and published papers you will see that every target variable has its own ECT in its VECM.
Please prof., I have a time series data, all are I(1) and cointegrated but my optimal lag is 1, can I still go on and run VECM given p-1 condition. Thanking you in advance of your quick response ma.
Hi Dayo, this is not a problem since VECM must contain lags of the regressors. All you have to do is to maintain the 1 lag and put a footnote to state why....and thanks for the kind words on my UA-cam Channel. Kindly tell others to subscribe... Humbly appreciated!
I have two integrated variables of order 1 and two integrated variables of order 0 and I used the ARDL model.
please how can i use causality between these variables
Watch my video on "ARDL-ECM and 3 ways causality checks".
I love all your videos. very clear and easy to follow. I need the link to a video on step 4 (When there is no cointegration)
Thanks Zama, estimate VAR when JCT shows no cointegration. Click on the Playlists to watch my videos on the procedure. May I know from where (location) you are reaching me?
@@CrunchEconometrix Thank you. i am watching your videos all the way from Eswatini (formerly known as Swaziland)
@@babaywakhe Awesome! Please spread the word about my videos to your students, friends and academic community in Eswatini! 💕 😊
Hello CrunchEconometrix. I appreciate a lot your contribution with these videos, they amazing. Thank you!
Please can you help me with a question: Why ECT=-0.0670 is interpreted as "an adjustment speed of 6.7%", but for the short-run effect of PCE=0.44 you say "a percent change in PCE is associated with a 0.44 percent increase in PDI"?. Why using a different rule for interpreting long-run and short-run coefficients, or was it a small lapsus? Thank you again for your great videos!
Hi Sabrososh, thanks for the encouraging feedback. Deeply appreciated! Those are the generic interpretations. Look up the the references listed at the end of the video or my papers listed on the Community Page. Thanks
Hello!
I have been following your videos and I want to thank you for the help they have given me in my dissertation.
One question: How do you resolve heteroscedasticity if it arises on White's test?
You can take logs or change regressors.
@@CrunchEconometrix Thanks for your feedback! By the way, since the dummy variables are exogenous, how can we measure their impulse/response function?
Thanks!
@@duartegracamoreira You cannot.
Ma, in the preceding video, you did not difference the variables before running the Johansen test, after they proved to be I(1). May I please know why? Thank you
Hi Reine, JCT is performed on the variables in their natural and not transformed form. Refer to any econometric textbook on the fundamentals of cointegration. May I know from where (location) you are reaching me?
Hi madam, I wanna ask about the model of VECM, it should be multiplied by -1 to see the negative effect or positive effect right?
Kindly watch all my VECM and follow the steps shown. Well explained too. Thanks.
How can I correct for autocorrelation, heteroscedasticity and normality problems?
Estimate the model at higher-order lags.
Is the interpretation of the ECT coefficients in percentage because of the logs you take (lndpi, lnpce etc..)? Or would this be a percentage for normal variables as well?
Adapt the interpretation given in the video.
@@CrunchEconometrix At 4:30 you say that 'the previous years deviations from long-run equilibrium is corrected at a speed of 6.7%.' If it wouldn't be a log variable but a regular variable, would it just be 'corrected with a value of -0.067'? Thank you in advance
Max, since you are not paying attention to my guide, you can easily clarify your doubts by reading interpretation of the ECT from any publication.
@@CrunchEconometrix okay, I was hoping for just a short answer yes or no
Max, you need to read to be sure of the information you need. You may not get a YES or NO answer all the time. I've done my best to guide you but you aren't paying attention. So, my honest and candid advice is that you read. I've made that clear in almost all my clips: video tutorials are not substitutes for reading. Please READ to strengthen your academic confidence.
After doing the VECM test I ran the diagnostic to see if there was heteroskedasticity and the residuals were found to be heteroskedastic. How can I correct it?
Hi Ann, re-estimate the model at higher-order lags.
@@CrunchEconometrix ok Thank you :)
Good afternoon ma'am, i am running VECM model with time series data but it could not run and one message came- Insufficient number of observation. What should i do ? kindly suggest me.
You require at least 30 observations for time series analysis.
hello profesor, i have monthly data for 14 years. in Johansen test I have at most 2 cointegration. when i run with the optimized lag, i have a lot of coeficients
I explained in my video on JCT to keep it simple by using 1 CE.
Thank you for the video. From this, how can I proceed to assess causality?
U're welcome, Pedro. Simply watch my videos on VECM and Causality Tests. May I know from where (location) you are reaching me?
@@CrunchEconometrixThank you very much for your answer. In the mean time, I've already watched almost all your videos and understood that. I'm from Portugal. Thank you
I have a question, Suppose if we get the no. of lags for cointegration as 1, then what are we going to use as the no. of lags for VECM, we can't use 0 (since we get an error) isn't it madam?
P.s. I love your videos, they're very beginner-friendly and clear also they're really helpful for my analyses
Hi Manoj, VECM cannot be estimated in static mode. Retain the 1 lag and put a note to that in your work. Thanks.
Thank you mam,
May I ask about the t-statistics? How do we know the value in the t table? And how do we know the degree of freedom in VECM?
Hi Emira, from the output the t-stats are in [ ]. On how to get that from the t-table, I will advise you read up HYPOTHESIS TESTING from any econometrics textbook for detailed guidance. Thanks.
I have a problem with my regression. I'm using Eviews as the econometric software and I'm running Vector Error Correction Model (VECM). I have a problem of heteroskedasticity and autocorrelation. I don't know how to correct them in Eviews using VECM.
Hi Bentou, correction will require several measures not one. You can try increasing or decreasing the lags, changing regressors or control variables.
what to do if the model is suffering from serial correlation and heteroskedasticity....please help
Hi Monica, estimate the model using the optimal lags and if the problem persists, re-estimate at higher-order lags.
As error term distribution does not follow normality so what can be done
Hi Arup, NORMALITY TEST under VAR-VECM can be overlooked because it's SYSTEM of equations. Focus more on the model passing both HETEROSCEDASTICITY and AUTOCORRELATION tests.
Vecm will run level data or first difference data
Hi Arup, difference variables. I explained and showed this in my VECM videos.
Hi. I have 5 variable with cointegration.
Can i choose between VAR and VECM ?
Or only VECM ?
Thanks
Please watch my VAR and VECM videos. Well explained.
I watched the video. I see in video that if the variable I(1) are cointegrated yo estimate var AND evcm.
But its (and ) or (OR)
@@CrunchEconometrix so i choose beteween var and evcm or both
You may decide to show the VAR estimates before the VECM.
Hello mam, after running VECM, the diagnostic tests show auto correlation, heteroskedasticity and no normality. what to interpret now? and if the interpretation says given VECM model is invalid, then what to do next?
Hi Boni, re-estimate the model by playing around with lags...or change regressors if you have it. You have to try several solutions to fix the problems.
@@CrunchEconometrix ok mam. thank you so much for your guidance
What we should do in vecm lag selection if lag is 1
Hi Neha, retain the one lag and put a note in your work on why you did that.
Thank you Dr. for this video. Pls how do I get to know the P-values of the coefficients since what is provided is the standard errors and t-statistics? thanks
I can't recall. Use the t-stats.
Thanks for the prompt response. But sorry to draw you back. What process am I to take with the T-stat? I really don't know
Alright, Kenechukwu. You made me go into EViews10 at 2.30am. To obtain pvalues from VAR output: Go to ->>Proc, Make System, Order by variable, Estimate, 🆗.
Lolzz. So sorry about the inconvenience Dr. I appreciate. Thanks for the info. I will try it out.
Hlo Ma'am...In VECM..Results come as (Coefficient of ECT or cointegrated egn is 0.66 and p value is 0.03. Model is correct or not ?? What is mean?? When coefficient is not -ve but p value is significant. With Regards.
Hi Ajay, a +ve ECM indicates that there is no long-run convergence to equilibrium. The model is explosive.
Hi professor. My three variables are all I(1). According to Johensen test, there are 2 cointegrations. However,when I construct VECM, C(1) is not significant and sometimes not negative.
I have no idea where the mistake exists because I followed your method step by step.
Hi Jacky, the outcomes we get have a lot to do with the variables used for analysis not necessarily because the econometric procedure is wrong....assuming things are done properly.
How can I interpret the coefficient of ECT if the sign is positive ?? Thank u in advance
It implies that the model diverges. There's no reversion to long run equilibrium. Model is explosive.
CrunchEconometrix so in this case I should interpret that like this or may I change my model . But after researching on other plateforme I found that it is possible if there’s a structural change or break is this right .
There is no right or wrong. The result is what it is. Surf the web and you will find papers with positive ECT. You may also decide to re-model by changing or removing some regressors.
that you for the help
You're welcome, dear!!! Kindly tell others too...gracias!
if variables are intergated of different of orders how do you apply the VECM
You can't use VECM but ARDL model. I have several videos on the procedure but start with the video on "This is how to specify ARDL model". It is detailed and straight-to-the-point.