Error Correction Model

The cointegrated processes Y1t and Y2t are assumed to be in long-term stationary relationship. This sets conditions for a hypothesis that there is a mechanism of adjustment that returns Y1t and Y2t to their long-term relationship in case of their error.

Given below is the general case of the model:

Where:

The analyzed model may contain a non-zero average, or a trend. Cointegration equations may also contain a constant and a trend.

Denote:

The following model types may exist:

See also:

Library of Methods and Models | Cointegrated Processes | Vector Error Correction Model | Modeling Container: Error Correction Model | Time Series Analysis: Error Correction Model | IModelling.Ecm | ISmErrorCorrectionModel