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Can someone explain to me the result of this test? I am not sure what the ect1, ect2, etc. mean.

Output

$beta                                                                                    
-------------------------|      ect1      |      ect2     |  ect3   |                 
-------------------------|:--------------:|:-------------:|:-------:|
Current.account.EUR.l3---|---1.000000e+00-|--1.626303e-19-|-1.040834|
Unemployment.EUR.l3------|--4.263256e-14--|1.000000e+00---| 1.421085|
Trade.EUR.l3-------------|---5.221518e-16-| 2.168404------|-191.00--|

I am looking for the betas for a linear regression, but I don't know how to interpret all these betas. Nobody answers concretely online.

FYI : I posted only the first 3 rows (out of a total of 9) and only the first 4 columns (out of a total of 8). The other columns are Betas with other ect..

Richard Hardy
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Enzo Marques
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1 Answers1

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These seem to be the slope coefficients on the error correction terms (thus ECTs). They show how fast the dependent variable adjusts towards the long-term equilibrium between the cointegrated variables. The ECTs themselves show how large deviations from equilibra there are. (Each ECT corresponds to a distinct equilibrium relationship.) Usually they are lagged by 1 period, so you know how large the deviations were last time. When a concrete ECT is multiplied by beta, you see by how much the gap from that equilibrium closes. E.g. $\beta_1=-0.5$ combined with a positive gap would mean that half of the gap tends to close in one period. (The gap can be defined as positive or negative w.r.t. the dependent variable, so you have to be careful when interpreting the signs of the betas. See this, this and this).

Richard Hardy
  • 67,272