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Inverse Roots of AR Characteristic Polynomial

Posted: Wed Jun 04, 2014 11:23 pm
by konkon7
hello,
I want to ask something about Inverse Roots of AR Characteristic Polynomial in the context of VECM. I know that all the dots should have been inside the circle on inverse roots graph in order to say that impulse responses are good. however in my example lets say : 50 dots are inside the circle and 1 dot is touching the circle in the positive x axis. is this good? how is interpreted?

thanks in advance

Re: Inverse Roots of AR Characteristic Polynomial

Posted: Thu Jun 05, 2014 2:02 am
by trubador
That is fine. VECM imposes n-r unit roots. So, if you have 2 variables and a single cointegration relationship then characteristic polynomial should have one root equal to 1. You can refer to any textbook for more detailed explanation.