A1197
Title: Vector error correction models with stationary and nonstationary variables
Authors: Pu Chen - Melbourne Institute of Technology (Australia) [presenting]
Abstract: Vector error correction models (VECM) have become a standard tool in empirical economics for analysing nonstationary time series data because they combine two key concepts in economics: equilibrium and dynamic adjustment, in one single model. The current standard VECM procedure is restricted to time series data with the same degree of integration, i.e. all I(1) variables. However, time series data with different degrees of integration are common in empirical studies, necessitating the simultaneous handling of I(1) and I(0) time series. The standard VECM is extended to accommodate mixed I(1) and I(0) variables. The mixed VECM conditions are derived, and as a result, a test and estimation of the mixed VECM are presented.
