Error correction model: Difference between revisions

Revision as of 15:39, 4 April 2021

Revision as of 13:57, 7 January 2022

Line 1:

{{Short description|typeType of time series model}}

An '''error correction model''' ('''ECM)''') belongs to a category of multiple [[time series]] models most commonly used for data where the underlying variables have a long-run common 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-period'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==