10-05-2015 09:26 AM
I have a model in which the dependent variable and independent variables exhibit cointegration and are non-stationary, but the model structure is an ECMX (1,0) which can be interpreted that the long-run dynamics hover near or at zero. Should a different model be used in this case or has anyone else come across this situation?
10-13-2015 03:35 PM
11-04-2015 12:02 PM
Thanks.... I'm trying to resolve if this model is conceptually sound. Based on an autoregressive p= 1, the Johansen trace test results in cointegration existing between at least 2 of the 3 covariates and when I test for weak exogeneity and Granger causality tests, the model structure results in one dependendent variable (sales) and the other two being independent (gdp and hpi). The end result is a ECMX (1,0) model due to nonstationarity and cointegration with gdp and hpi explaining sales. I was informed that this model structure is conceptually unsound since there is no long run equilibrium for the variables to correct cointegration.