Error correction model (ECM)

Updated: Aug 20, 2021

A dynamic model in which the change of the variable in the current time period is related to the distance between its value in the previous period and its value in the long-run equilibrium. This model is frequently used to estimate a short-run dynamic relationship between equilibrium relationship. See also Johansen’s approach; vector error correction model.

Reference: Oxford Press Dictonary of Economics, 5th edt.

Sources & references
Risk disclaimer
James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.