Hi everybody,
I am estimating a VECM to calculate an equilibrium exchange rate. For this, I use a total of seven variables (including the exchange rate).
When I use the vecrank command, STATA tells me there are six variables cointegrated.
Basically, my question is whether or not I should include the rank(6) option in the vec command. After all, I am only interested in explaining movements in the exchange rate, not in the other variables.
Can I proceed with my research if I just estimate the model with: vec exchangerate var1 var2 ... var6, trend(constant) rank(1)?
I do not understand the output if I specify rank(6).
Thank you in advance!
Hero
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