how to identify error correction term

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how to identify error correction term

Unread postby upani » Wed Jul 09, 2014 9:46 pm

Dear All,

How do i identify the error correction term in CATS Anlaysis.

With regards,
Upananda
upani
 
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Re: how to identify error correction term

Unread postby TomDoan » Wed Jul 09, 2014 10:18 pm

What do you mean?
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Re: how to identify error correction term

Unread postby upani » Wed Jul 09, 2014 10:53 pm

After estimating the cointegration, I am interested to estimate the vecm model
vecm.jpg
vecm.jpg (15.01 KiB) Viewed 6927 times
. So i want to know the following parameter on error correction term on each equation for the spot and futures price respectively. I want to know how to get the parameter after estimating in CATS.
upani
 
Posts: 53
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Re: how to identify error correction term

Unread postby TomDoan » Thu Jul 10, 2014 12:32 pm

While you can get that out of CATS, you're better off with a system like that to let CATS help you figure out the rank and do various diagnostics, but then have RATS actually estimate the VECM once you've settled on the specification. Use @JOHMLE to estimate the cointegration vector (it will give identical results for an identical model) and SYSTEM with an ECT instruction to set up the VECM. See Section 7.8 and Example 7.7 in the v8 User's Guide.
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