On Fri, 18 Sep 2015, Stefan A. wrote: Both your questions have their full answer in any good general time series econometrics textbooks (Hamilton, Lütkepohl, Martin et al, ...) or in books that deal specifically with the VECM model (eg Johansen, Juselius). However, in brief: what you call Eviews' rule of thumb is not Eviews' and is not a rule of thumb. Out of the canonical "five cases", the only two consistent with the observed data going steadily up (or down) are cases 3 and 4 (u. const. and r. trend, respectively); but then, case 4 is preferable for quite a few reasons that it would take too long to explain here. As for the "alpha orthogonal restriction", it can be shown that the computation is nearly immediate by augmenting the vector of lagged levels with the appropriate determinsitic terms when computing the eigendecomposition which lies at the heart of Johansen's ML approach. More detail in the books I listed above. ------------------------------------------------------- Riccardo (Jack) Lucchetti Dipartimento di Scienze Economiche e Sociali (DiSES) Università Politecnica delle Marche (formerly known as Università di Ancona) r.lucchetti(a)univpm.it http://www2.econ.univpm.it/servizi/hpp/lucchetti -------------------------------------------------------