Hi all,
I have estimated a VEC model for a set of 10 macroeconomic variables using five cointegrating equations, as suggested by the Johansen test. Once I run Granger causality tests (Wald), for the model of interest I have found that one variable unidirectionally Granger causes the dependent variable. Additionally, the IRFs show a large response to innovations in the variable that is found to Granger cause y. However, within the VECM framework, the coefficients for the lagged values of the x variable in question are insignificant. Does this suggest that the impulse is resulting from the long-run relationship between the variables, or is this suggestive of a misspecified/unstable model/another issue with the model?
I can, of course, provide any further details if needed. I would greatly appreciate any guidance if anyone happens to know what this result may mean!
Granger Causality in VECM
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