Stationary Vector Autoregressive Representation of Error Correction Models

DOI: 10.4236/tel.2012.22027   PDF   HTML   XML   6,415 Downloads   10,397 Views   Citations

Abstract

The paper introduces a stationary vector autoregressive (VAR) representation of the error correction model (ECM). This representation explicitly regards the cointegration error a dependent variable, making the direct implementation of standard dynamic analyses using standard VAR models possible, particularly with respect to the cointegration error. Of course, an ECM does not have an explicit VAR form, and thus, it is not convenient for conducting such dynamic analyses. In this regard, we transform the original nonstationary VAR model into a VAR model with the cointegration error and stationary variables. Finally, we employ the model to dynamically analyze the real exchange rate between the US dollar and the Japanese yen.

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Y. Kim, "Stationary Vector Autoregressive Representation of Error Correction Models," Theoretical Economics Letters, Vol. 2 No. 2, 2012, pp. 152-156. doi: 10.4236/tel.2012.22027.

Conflicts of Interest

The authors declare no conflicts of interest.

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