Error correction model - part 1

In this video I introduce the concept of an Error Correction Model, and explain its importance in econometrics.

[repuglia]

You're a real life saver, and you explain a lot better than my current teacher.

Keep up the good work, cheers

[nSense]

Ben the Oxford undergraduates taking the Econometrics FHS exam on Saturday salute you!

[ebateru]

Dude, Im falling in love with you! thanks a bunch!

[shoaibkahut]

Greetings from *China* sir ! YOU are the real LIFE saver . Thank you

[leventis]

Greetings dear Ben,
I was wandering if you could answer me the following two questions first of all i would like you to clearify where do i use the VECM equation...i still haven't figure out where it should be used (for prediction or analysis) and what to we mean when say "short run" what is considered short run to an estimation and secondly which model is better suited for a prediction the normal var or the VECM?
Thank you in advance
G.K.

[jackiecomendador]

just wanted to say thank you for all your videos and being one of the reasons why I'll graduate college

[RayDV]

what is alpha supposed to be? I Can't see why you add ir it and why did you change the constant?

[perrygogas]

Great Ben I am gonna send this to my students.

[mihaililiev]

Splendid! I finally get to understand the error correction model!

[igorstanisic]

Ben, both videos (part 1 and 2) explain very well the EC model. Thank you for sharing it.
I would like to run Engle-Granger methodology in R. Could you suggest any material which shows how Engle-Granger methodology is applied on data in R? Thank you for any assistance.

[Mrnmc]

This is so good. Very clear explanation.

[syedtabrez]

Ben, I have seen that after generating Long Run and Short Run equations, the error correction coefficient is multiplied with the Long Run coefficients and then deduced a final regression equation based on new Long Run and Short Run, can you explain this logic?

[khanhlinhpham]

Why does (S1+S2) equal to (1- mu) at 6:42s? please!

[TheDiegoAdrenalina]

Thank you so much for this helpful video! Really appreciate your work.

[l]

1:11, I think an important correction is that it's not simply more powerful to run ECM, but actually running the VAR in first differences when there is cointegration is wrong: there does not exist a VAR specification in differences that allows to achieve the structual shocks of the WOLD, since the matrix of the Wold will not be invertible. VAR exist only in levels but not in first differences under cointegration.

[OgaMariOga]

Thank you so much, your videos are extremely helpful!

[samiasamssoume]

useful video! One question; I do not understand where come 1-m parameter for y (t-1). thanks a lot.

[TÔMTIÊNYÊN]

thank you very much, you are very great

[endrity]

Silly question but what kind of software do you use to produce these videos? Great work btw.

[Azam_Pakistan]

All well till step 4.After that couldn't follow. Please add a few more steps to clarify.