VECM Estimation

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errorterm
Posts: 8
Joined: Thu Apr 19, 2012 1:52 am

VECM Estimation

Postby errorterm » Wed Oct 31, 2012 2:25 am

I am trying to estimate a VECM on three monthly variables LOG(X), LOG(Y), LOG(Z). The default error correction representation in EViews would be in first log differences:

D(LOG(X)) = A(1,1)*(B(1,1)*LOG(X(-1)) + B(1,2)*LOG(Y(-1)) + B(1,3)*LOG(Z(-1)) + B(1,4)) + C(1,1)*D(LOG(X(-1))) + C(1,2)*D(LOG(X(-2))) + C(1,3)*D(LOG(Y(-1))) + C(1,4)*D(LOG(Y(-2))) + C(1,5)*D(LOG(Z(-1))) + C(1,6)*D(LOG(Z(-2))) + C(1,7)

D(LOG(Y)) = A(2,1)*(B(1,1)*LOG(X(-1)) + B(1,2)*LOG(Y(-1)) + B(1,3)*LOG(Z(-1)) + B(1,4)) + C(2,1)*D(LOG(X(-1))) + C(2,2)*D(LOG(X(-2))) + C(2,3)*D(LOG(Y(-1))) + C(2,4)*D(LOG(Y(-2))) + C(2,5)*D(LOG(Z(-1))) + C(2,6)*D(LOG(Z(-2))) + C(2,7)

D(LOG(Z)) = A(3,1)*(B(1,1)*LOG(X(-1)) + B(1,2)*LOG(Y(-1)) + B(1,3)*LOG(Z(-1)) + B(1,4)) + C(3,1)*D(LOG(X(-1))) + C(3,2)*D(LOG(X(-2))) + C(3,3)*D(LOG(Y(-1))) + C(3,4)*D(LOG(Y(-2))) + C(3,5)*D(LOG(Z(-1))) + C(3,6)*D(LOG(Z(-2))) + C(3,7)

What should I do if I want the dependent variables in the error correction representation to be DLOG(X,0,12), DLOG(Y,0,12), DLOG(Z,0,12) instead and where the cointegrating equation enters as B(1,1)*LOG(X(-12)) + B(1,2)*LOG(Y(-12)) + B(1,3)*LOG(Z(-12)) + B(1,4)?

The reason why I want to do this is that the y/y growth in the variables is easier to model compared to the m/m growth rates.

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