does anybody here know how to interpret the sign of EC term in VECM model?
I know that it has to be negative and significant.. some people say the coefficient should be between 0 and -1, some people say negative and significant is sufficient. I have run restricted VAR on a number of variables and the coefficient of EC is -1.53.. My question is: Can speed of adjustment be above 100 percent (since my EC term is -1.53, which means 153 percent adjustment to equilibrium) do you think it is ok to say result is negative and significant , indicating long run relationship among the variables? is this adjusting to equilibrium fast?
higher the value of coefficient of EC, higher the speed of adjustment mechanism to equilibrium. let's say one EC value is -0.45 and another is -0.20..45 percent versus 20 percent.. this means, deviations from the equilibrium are corrected at about 45 percent per year or month (versus 20 percent per year or month). 45 percent is faster than 20 percent. My question is: Can speed of adjustment be above 100 percent (since my EC term is -1.53, which means 153 percent adjustment to equilibrium)? is this adjusting to equilibrium fast?..
I really appreciate your help in explaining how to interpret this result.
