Error correction model: Difference between revisions

Revision as of 01:03, 5 December 2016

Revision as of 12:49, 15 April 2017

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Then the predicted residuals <math>\hat{\varepsilon_t}= y_t -\beta_0 - \beta_1 x_t </math> from this regression are saved and used in a regression of differenced variables plus a lagged error term

: <math> A(L) \, \Delta y_t = \gamma + B(L) \, \Delta x_t + \alpha \hat{\varepsilon_varepsilon}_{t-1}} + \nu_t. </math>

One can then test for cointegration using a standard [[t-statistic]] on <math>\alpha</math>.