Cointegration and VECMs

John D. Levendis
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John D. Levendis: Loyola University New Orleans

Chapter 12 in Time Series Econometrics, 2018, pp 343-382 from Springer

Abstract: Abstract The VARs that we looked at in the last chapter were very well suited for describing the short-run relationship between variables, especially if they are stationary. Most economic variables are not stationary, however. This required us to transform the variables, taking first differences, so that they are stationary. In this chapter, we show how to model the long-run relationship between variables in their levels, even if they are integrated. This is possible if two or more variables are “cointegrated.” If two variables are cointegrated, then, rather than taking the first difference of each variable, we can essentially model the difference between the two variables. Loosely speaking.

Date: 2018
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DOI: 10.1007/978-3-319-98282-3_12

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