Vector Auto Regression and Vector Error Correction Model

Sarit Maitra ()
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Sarit Maitra: Alliance University

Chapter Chapter 7 in A Practical Guide to Static and Dynamic Econometric Modelling, 2025, pp 171-201 from Springer

Abstract: Abstract This chapter explores the practical implementation of advanced dynamic models, focusing on Vector AutoRegression (VAR) and Vector Error Correction Models (VECM). These multivariate time series models are essential tools in econometrics for capturing the interdependencies and dynamic interactions among economic variables. Unlike traditional single-equation models, VAR treats all variables in the system as endogenous, which makes it effective for analyzing feedback effects and contemporaneous relationships. VECM extends this framework by incorporating cointegration, allowing the model to account for long-run equilibrium relationships while capturing short-run dynamics. Together, these models provide a robust framework for understanding both immediate and persistent interconnections among variables in dynamic economic systems.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-031-86862-7_7

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DOI: 10.1007/978-3-031-86862-7_7

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