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The cointegration term is known as the error correction term since the deviation from long-run equilibrium is corrected gradually through a series of partial short-run adjustments.
To capture the short run deviations of the series from their long run equilibrium requires the inclusion of an error correction term in the stationary model.
Further, to accommodate the statistical features of the time series, we include an error correction term in the Gordon triangle model (equations 1-3).
Looking at the results in Table 5, we see that the coefficient of the error correction term, [[lambda].
However, the coefficient on the error correction term when the budget is worsening is significant in the revenue and expenditure equations.
The autocorrelation coefficient for the error correction term has been relatively low in the 1990s, which should increase the likelihood that no cointegration among the variables will be rejected.
Sales--Results based on the VECM (Table 4) indicates that in the short run, each explanatory variable (A and P) significantly Granger-cause sales (as reflected in the significance of the F-tests of the lags of the explanatory variables), but the proportion by which the sales (S) variable adjusted endogenously in the short run to its long-term equilibrium relationship with other cointegrating variables is nevertheless significant (as evidenced in the significance of the t-test of the lagged error correction term derived from the long-term cointegrating relationship).
4 per cent of the observations, the error correction term is insignificant for [DELTA][R.