Error correction model: Difference between revisions

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An '''error correction model''' belongs to a category of multiple [[time series]] models most commonly used for data where the underlying variables have a long-run stochastic trend, also known as [[cointegration]]. ECMs are a theoretically-driven approach useful for estimating both short-term and long-term effects of one time series on another. The term error-correction relates to the fact that last-periodsperiod's deviation from a long-run equilibrium, the ''error'', influences its short-run dynamics. Thus ECMs directly estimate the speed at which a dependent variable returns to equilibrium after a change in other variables.

==History of ECM==