i am running ARDL technique to find out relationship between fiscal deficit and private investment. the value of ecm is -1.04 which is significant. how to interpret it.
Theoretically, ECM should range between -1 and 0 with which you can interpret it as a percentage return to equilibrium of your variables or how much percentage is disequilibrium corrected. In your case, the ECM of -1.04 means equilibrium is restored at 104% within a year which subjectively may not make sense. However, if you experience more than one ECM, not all of them will follow the theoretical range and a mixed of that will seem normal. Actually, it is difficult interpreting the ECM in such case. You may check if your cointegration system meet all theoretical assumptions.
Hi Emmanuel,
ECM should be a small value. Even within the literature review I never seen a value above 1.
It seems that something is missing in your model/estimations. Please check it once again.
Hope this helps
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