Hi John. Thanks for below. I think there's terminology confusion because by stationarity , I don't think Ron means that the variable is not part of the cointegrating relation. I think he just means that the variable doesn't need to be differenced. <br /><br />The term "stationarity" is always vague and often causes communication problems but on 303,<br />R_t is not differenced and is still part of the cointegrating relation so that's why I'm interpreted his question the way I did. But thanks for below and I do understand what you mean by a stationary variable not entering the ecm.<br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><p>On Aug 19, 2009, <strong>John Frain</strong> <frainj@tcd.ie> wrote: </p><div class="replyBody"><blockquote style="border-left: 2px solid #267fdb; margin: 0pt 0pt 0pt 1.8ex; padding-left: 1ex">Lutkepohl is splitting up the system into r stationary components or<br />ecm's and n-r trends. He uses this ordering to show that that this<br />can be done. The stationary components and the ecm's only enter the<br />system at lag 1. The stationary components do not and should not<br />enter the ecm's. If you do have stationary variables this is testable<br />and may be imposed at estimation.<br /><br />Best Regards<br /><br />John<br /><br />2009/8/19 RON70 <<a href="mailto:ron_michael70@yahoo.com" target="_blank" class="parsedEmail">ron_michael70@yahoo.com</a>>:<br />><br />> still no single reply. Should I need to design my query in better way?<br />><br />><br />><br />> RON70 wrote:<br />>><br />>> Hi all, in Lutkepohl, page 250, I found that if there are stationary<br />>> variables in integrated system then they must be put in upper r-dimension.<br />>> My quesltion is, is that the fact? If I do not do it, is there any problem<br />>> in estimation and interpretation? I have done few exercises and found that<br />>> parameter estimation is not infected with ordering (except IRF<br />>> estimation). Even is page 303 an example is presented wherein inflation<br />>> rate variable is taken as 2nd variable, although it looks like a stable<br />>> process.<br />>><br />>> Can anyone please clarify that? If really ordering is a problem in<br />>> presence of a stationary variable, can anyone provide me an example, with<br />>> perhaps in R-code so that I can regenerate?<br />>><br />>> Thanks<br />>><br />><br />> --<br />> View this message in context: <a href="http://www.nabble.com/A-question-on-VECM-tp24985789p25038989.html" target="_blank" class="parsedLink">http://www.nabble.com/A-question-on-VECM-tp24985789p25038989.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 />><br />><br /><br /><br /><br />-- <br />John C Frain, Ph.D.<br />Trinity College Dublin<br />Dublin 2<br />Ireland<br /><a href="http://www.tcd.ie/Economics/staff/frainj/home.htm" target="_blank" class="parsedLink">www.tcd.ie/Economics/staff/frainj/home.htm</a><br />mailto:<a href="mailto:frainj@tcd.ie" target="_blank" class="parsedEmail">frainj@tcd.ie</a><br />mailto:<a href="mailto:frainj@gmail.com" target="_blank" class="parsedEmail">frainj@gmail.com</a><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>