which one of I(1) or I(0) enters VECM?

[peter_h]

Hi,

I read many posts here, also some other sources but I'm still quite confused because of the mixed recommendations. So I ask directly: "Do I have to difference I(1) series (price indices) in order to estimate VECM? (All of my variables are I(1) ).

For what I understand, VECM is supposed to capture the long-run relationship between the variables and differencing the series can destroy such information. On the other hand, when I look at the mathematical expression of VECM, yts and lags enter the VECM in first differences (delta operator).

Δyt = − ψyt−1 + ∑r ΦiΔyt−i + c + ut

So now, I'm quite confused. Can you, please, help me? thanx