hi ron : the simple vecm is<br /><br />1) delta y_t = delta x_t + alpha(y_t-1 - beta*x_t-1) + epsilon_yt ( but check this to make sure ).<br /><br />so, first generate x_t's that are I(1) by generating x_t = x_t -1 + epsilon_xt<br /><br />Then. given the x_t's, pick some beta and an an alpha, and generate the y_t's based on 1).<br /><br />this will give you y_t and x_t that are I(1) and cointegrated by definition.<br /><br />the multi vecm is more complex but the idea is the same.<br /><br /><br /><br /><br /><br /><br /><br /><p>On Jun 28, 2009, <strong>RON70</strong> <ron_michael70@yahoo.com> wrote: </p><div class="replyBody"><blockquote style="border-left: 2px solid #267fdb; margin: 0pt 0pt 0pt 1.8ex; padding-left: 1ex"><br />Hi all,<br /><br />Can anyone here please help me how to create a DGP which corresponds to VECM<br />(Vector error correction) ? Actually I want to define a arbitrary VECM as a<br />DGP and then study the properties of it's realizations. However I can not<br />construct an arbitrary VECM from my own, especially it's coefficients, which<br />lead to strictly I(1) process of individual variable.<br /><br />Thanks and regards,<br />-- <br />View this message in context: <a href="http://www.nabble.com/Creating-a-VCEM-data-generating-process-tp24243230p24243230.html" target="_blank" class="parsedLink">http://www.nabble.com/Creating-a-VCEM-data-generating-process-tp24243230p24243230.html</a><br />Sent from the Rmetrics mailing list archive at Nabble.com.<br /><br />_______________________________________________<br /><a href="mailto:R-SIG-Finance@stat.math.ethz.ch" target="_blank" class="parsedEmail">R-SIG-Finance@stat.math.ethz.ch</a> mailing list<br /><a href="https://stat.ethz.ch/mailman/listinfo/r-sig-finance" target="_blank" class="parsedLink">https://stat.ethz.ch/mailman/listinfo/r-sig-finance</a><br />-- Subscriber-posting only.<br />-- If you want to post, subscribe first.<br /></blockquote></div>