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Re: st: VECM: Deterministic Factors & Significance for ce1 in short-run parameters


From   Prakash Singh <prakashbhu@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: VECM: Deterministic Factors & Significance for ce1 in short-run parameters
Date   Thu, 7 Feb 2013 21:28:21 +0530

Dear Daniel

As far as my knowledge goes significant ce term is essential for
cointegration; in other words significant ce terms indicate presence
of cointegration and the size of cointegrating coefficient is supposed
to be negative and should be in between 0 to 1.


Hope it helps

Prakash
On Wed, Feb 6, 2013 at 7:04 PM, Daniel Ilg <daniel.ilg@ku.de> wrote:
> Dear users,
>
> I have 1 problem and 1 question.
> I apply the VECM for a time series. My dependent variable is default
> probability and all variables are I(1).
>
> My problem:
> I want to determine the deterministic components for my VECM.
> My independent variables have different deterministic components, so I can't
> derive my deterministic factors from theory. Another problem is, that I'm
> just interested in a cointegration relation of 1 (default probability is the
> variable I want to explain). So I'm not interested in more ranks than 1. I
> applied pentula and modified pentula principle but the problem is, I get
> more ranks and - as said before - I'm just interested in 1 cointegration
> relation. So, how can I determine the deterministic components of my VECM
> for rank = 1?
>
> My question:
> When I get my VEC output does my "ce1" need to be significant in my Error
> Correction "d_default_probability"? What does it mean when "ce1" is not
> significant in the short-run?
>
> Thx a lot & regards,
> Daniel
>
>
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