Open Access Journal Article

Vector Error Correction Models with Stationary and Nonstationary Variables

by Pu Chen a,* orcid
a
Melbourne Institute of Technology, Australia
*
Author to whom correspondence should be addressed.
EAL  2024, 55; 3(2), 55; https://doi.org/10.58567/eal03020004
Received: 10 December 2023 / Accepted: 14 January 2024 / Published Online: 15 June 2024
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Abstract

Vector Error Correction Models (VECM) have become a standard tool in empirical economics for analyzing nonstationary time series data because they integrate two key concepts in economics: equilibrium and dynamic adjustment in a single model. The current standard VECM procedure is limited to time series data with the same degree of integration, i.e., all I(1) variables. However, empirical studies often involve time series data with different de‐grees of integration, necessitating the simultaneous handling of I(1) and I(0) time series. This paper extends the standard VECM to accommodate mixed I(1) and I(0) variables. The conditions for the mixed VECM are derived, and consequently, we present a test and estimation for the mixed VECM.

Keywords: VECM, Cointegration, Stationary Variables;
Copyright: © 2024 by Chen. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Chen, P. Vector Error Correction Models with Stationary and Nonstationary Variables. Economic Analysis Letters, 2024, 3, 55. https://doi.org/10.58567/eal03020004
AMA Style
Chen P. Vector Error Correction Models with Stationary and Nonstationary Variables. Economic Analysis Letters; 2024, 3(2):55. https://doi.org/10.58567/eal03020004
Chicago/Turabian Style
Chen, Pu 2024. "Vector Error Correction Models with Stationary and Nonstationary Variables" Economic Analysis Letters 3, no.2:55. https://doi.org/10.58567/eal03020004
APA style
Chen, P. (2024). Vector Error Correction Models with Stationary and Nonstationary Variables. Economic Analysis Letters, 3(2), 55. https://doi.org/10.58567/eal03020004

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