VECM model and rank
Posted: Sun Sep 21, 2014 4:45 pm
I'm afraid VECM regressions are pushing me into unfamiliar territory.
I have 4 equations. The Johansen test identified 4 cointegrating equations. I have two exogenous variables as well.
I'm trying to get my head around what the 'rank' should be and I don't get it.
Could I get a little bit of help here? It makes a a crucial difference if the model has rank 3 to if it has rank 1.
As far as I can understand, 4 co-integrating equations will generate rank 3
TIA
B
I have 4 equations. The Johansen test identified 4 cointegrating equations. I have two exogenous variables as well.
I'm trying to get my head around what the 'rank' should be and I don't get it.
Could I get a little bit of help here? It makes a a crucial difference if the model has rank 3 to if it has rank 1.
As far as I can understand, 4 co-integrating equations will generate rank 3
TIA
B