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Vector Auto Regression and Vector Error Correction Model

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  • Sarit Maitra

    (Alliance University)

Abstract

This chapter explores the practical implementation of advanced dynamic models, focusing on Vector AutoRegression (VAR) and Vector Error Correction Models (VECM). These multivariate time series models are essential tools in econometrics for capturing the interdependencies and dynamic interactions among economic variables. Unlike traditional single-equation models, VAR treats all variables in the system as endogenous, which makes it effective for analyzing feedback effects and contemporaneous relationships. VECM extends this framework by incorporating cointegration, allowing the model to account for long-run equilibrium relationships while capturing short-run dynamics. Together, these models provide a robust framework for understanding both immediate and persistent interconnections among variables in dynamic economic systems.

Suggested Citation

  • Sarit Maitra, 2025. "Vector Auto Regression and Vector Error Correction Model," Contributions to Economics,, Springer.
    • Handle: RePEc:spr:conchp:978-3-031-86862-7_7
    DOI: 10.1007/978-3-031-86862-7_7
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