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


From   "Daniel Ilg" <daniel.ilg@ku.de>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: VECM: Deterministic Factors & Significance for ce1 in short-run parameters
Date   Thu, 7 Feb 2013 17:15:46 +0100

Dear Prakash,

Thank you for your answer! I thought, a cointegration relation proven through Johannsen or 2-Step-Eagle-Granger-Approach (or other tests of the residuals) is sufficient. Am I wrong? I read as well that the cointegrating coefficient should be negative and between 0 and 1. Do you have a clue why?

Best regards,
Daniel

Mit freundlichen Grüßen/Best regards

Daniel Ilg
wissenschaftlicher Mitarbeiter/Research Associate 
Lehrstuhl für Wirtschaftstheorie/Chair of Economic Theory

Katholische Universität Eichstätt-Ingolstadt/Catholic University Eichstaett-Ingolstadt 
Auf der Schanz 49
85049 Ingolstadt
Tel.: +49 841 937 1857
Mobil: +49 171 653 113 1
E-Mail: daniel.ilg@ku.de


-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Prakash Singh
Sent: Thursday, February 07, 2013 4:58 PM
To: statalist@hsphsun2.harvard.edu
Subject: Re: st: VECM: Deterministic Factors & Significance for ce1 in short-run parameters

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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