Hi All,
I am a bit confused on when to use VAR or VECM. Is this decision dependent on the unit root test? Let say I have dependent variable Y and independent variable X where each is stationary at I(1), which model should I use?
And when is the right time to use Toda Yamamoto?
Thanks in advance.
Regards,
Confused.
When to use VAR/VECM
Moderators: EViews Gareth, EViews Moderator
Re: When to use VAR/VECM
Hi,
You should use VECM if 1) your variables are nonstationary and 2) you find a common trend between the variables (cointegration). If your variables are nonstationary and you transform them to became stationary (diferences or subtracting trends) without doing a cointegration test you might be omitting a relevant variable, the cointegration relationship. So, if you don´t find cointegration in your test you can estimate a VAR with the stationary variables.
Best regards.
You should use VECM if 1) your variables are nonstationary and 2) you find a common trend between the variables (cointegration). If your variables are nonstationary and you transform them to became stationary (diferences or subtracting trends) without doing a cointegration test you might be omitting a relevant variable, the cointegration relationship. So, if you don´t find cointegration in your test you can estimate a VAR with the stationary variables.
Best regards.
Re: When to use VAR/VECM
Hello,
Now I get. thanks much!
Now I get. thanks much!
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