Speed of adjustment in vecm greater than 1 in magnitude
Posted: Wed Oct 21, 2015 5:39 pm
Hi,
I have been estimating a VECM using EViews and have found that I sometimes get values of the speed of adjustment parameter that are greater than 1 in magnitude. The Cointegrating relationship (there are only two endogenous variables) has a time trend within it.
Does anyone know how/why this happens? Also what does it mean? I thought this parameter had to be less than 1 in magnitude.
Best,
Ben
I have been estimating a VECM using EViews and have found that I sometimes get values of the speed of adjustment parameter that are greater than 1 in magnitude. The Cointegrating relationship (there are only two endogenous variables) has a time trend within it.
Does anyone know how/why this happens? Also what does it mean? I thought this parameter had to be less than 1 in magnitude.
Best,
Ben