What is Error Correction Term?
Posted: Wed Aug 01, 2012 12:06 am
Respected brothers,
Suppose my model is
ln(xit/mit)=b0+b1*rit+b2*Ypt+b3*Yit+e............(1)
where xit/mit is ratio of Export to import of domestic country with trading partners.
Rit=Real bilateral exchange rate between domestic country and trading partners.
Ypt=Domestic country real GDP.
Yit=Trading partner real GDP.
I am using the ARDL approach(bound testing),
I used this command in Eviews by taking 1 difference and 1 lag.
Dln(xit/mit) c dln_rit dln_Ypt dln_Yit ln(xit/mit)(-1) ln_rit(-1) ln_Ypt(-1) ln_Yit(-1)
Suppose estimated results:dln(xit/mit) = - 47.12 - 1.307*dln_rit + 6.283*dln(ypt) + 1.699*dln(yit) -0.3682*ln(xit/mit)_1 - 0.157*ln(rit)_1 - 0.3644*ln(ypt)_1 + 2.154*ln(yit)_1.
Now my question is that from above estimated model, which is our error correction model.
or Error correction term is separate thing and part of error correction model.
Suppose my model is
ln(xit/mit)=b0+b1*rit+b2*Ypt+b3*Yit+e............(1)
where xit/mit is ratio of Export to import of domestic country with trading partners.
Rit=Real bilateral exchange rate between domestic country and trading partners.
Ypt=Domestic country real GDP.
Yit=Trading partner real GDP.
I am using the ARDL approach(bound testing),
I used this command in Eviews by taking 1 difference and 1 lag.
Dln(xit/mit) c dln_rit dln_Ypt dln_Yit ln(xit/mit)(-1) ln_rit(-1) ln_Ypt(-1) ln_Yit(-1)
Suppose estimated results:dln(xit/mit) = - 47.12 - 1.307*dln_rit + 6.283*dln(ypt) + 1.699*dln(yit) -0.3682*ln(xit/mit)_1 - 0.157*ln(rit)_1 - 0.3644*ln(ypt)_1 + 2.154*ln(yit)_1.
Now my question is that from above estimated model, which is our error correction model.
or Error correction term is separate thing and part of error correction model.