[R-SIG-Finance] [R-sig-finance] A question on VECM

John Frain frainj at tcd.ie
Wed Aug 19 16:26:19 CEST 2009

Lutkepohl is splitting up the system into r stationary components or
ecm's and n-r trends.  He uses this ordering to show that that this
can be done.  The stationary components and the ecm's only enter the
system at lag 1.  The stationary components do not and should not
enter the ecm's.  If you do have stationary variables this is testable
and may be imposed at estimation.

Best Regards


2009/8/19 RON70 <ron_michael70 at yahoo.com>:
> still no single reply. Should I need to design my query in better way?
> RON70 wrote:
>> Hi all, in Lutkepohl, page 250, I found that if there are stationary
>> variables in integrated system then they must be put in upper r-dimension.
>> My quesltion is, is that the fact? If I do not do it, is there any problem
>> in estimation and interpretation? I have done few exercises and found that
>> parameter estimation is not infected with ordering (except IRF
>> estimation). Even is page 303 an example is presented wherein inflation
>> rate variable is taken as 2nd variable, although it looks like a stable
>> process.
>> Can anyone please clarify that? If really ordering is a problem in
>> presence of a stationary variable, can anyone provide me an example, with
>> perhaps in R-code so that I can regenerate?
>> Thanks
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John C Frain, Ph.D.
Trinity College Dublin
Dublin 2
mailto:frainj at tcd.ie
mailto:frainj at gmail.com

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