Dear scholars,
My error correction term coefficient is negative (-0.69) and statistically significant. This means that 0.69 of the long-term imbalances are removed in one year. It is OK.
I want to be clearer on this interpretation. It might be as follows.
For instance, in 2000, if the error term is -0.75, the equilibrium is below its long-run eq. by -.75. And the next year, the dependent variable equilibrium level will increase by (-0.69)*(-0.75) = 0.5175 to restore its long-run equilibrium.
Is there any paper or another source related to this subject? if so, could you share it with me?
Thank you.
We would need to know your research question(s), research design, and model with some refs if possible. I, at least, have no idea of what you are doing. Best, D. Booth
Hello,
you can interpret your ECM as follows;
The error-correction (ECM) term has the desired negative sign and it is statistically significant. The magnitude of the coefficient suggests a fairly high speed of adjustment in the aftermath of a shock. About 69.0 percent of disequilibria from a shock
converge back to the long-run equilibrium within a year.
Thanks & regards,
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