VECM: Australian and U. S. GDP
You have two difference stationary series that are cointegrated. Consequently, an error correction model of the short-run dynamics can be estimated using least squares. A simple error
and the estimates
AaUst = 0.491706+—0.0987029et_ 1
Ausat = 0.509884 ++0.0302501et_ 1
(t-statistics in parentheses)
which are produced using
1 ols diff(aus) const uhat(-1)
2 ols diff(usa) const uhat(-1)
The significant negative coefficient on et-1 indicates that Australian GDP responds to a temporary disequilibrium between the U. S. and Australia.
The U. S. does not appear to respond to a disequilibrium between the two economies; the t-ratio on et-1 is insignificant. These results support the idea that economic conditions in Australia depend on those in the U. S. more than conditions in the U. S. depend on Australia. In a simple model of two economy trade, the U. S. is a large closed economy and Australia is a small open economy.