Disequilibrium Macroeconomics volves estimating a vector-autoregressive system of the first differ ence of each variable in the cointegration equation onto lagged values of the first differences of all of the variables plus the lagged value of the error-correction term (that is, the error term from the coin- tegration regression) buffer the money market in disequilibrium suggests some restrictions on the error-correction model. The simplest possible error-correction odel regresses the first difference of the variables in the cointe- gration regression onto the error-correction term only; no lagged first differences are included. This is precisely the form of equa- tions(4),(5),(5a), and (5b) Such a simplistic formulation of the adjustment process may be inappropriate, especially if the adjustment of the variables is dis- tributed over time; that is, this period ' s error affects several future periods rates of change in the interest rate, real and nominal in and the price level. A modest es that such lagged adjustment to disequilibria does occur and that this periods error causes a perturbation in the adjustment path already in the pipeline for each variable because of previous periods'errors.In sum, the rates of change of a particular variable depend on lagged rates of change in itself and the lagged error-correction term Table 5 reports the results of the second approach, estimation of Equations (4),(5),(5a),and (5b) with the inclusion of significant lagged rates of change in the dependent variable. Several interest- g observations emerge. First, the coefficients of the error-correc- tion terms all have the expected sign Moreover, these coefficients are all significantly different from zero at the 5% or 10% levels in the full-sample regres Second, the sub-sample regressions suggest that the pre- and post-1973 adjustment processes differ. Real and nominal income re- spond significantly to the error-correction term before 1973.(The price level responds significantly at the 15% level. )The interest rate does not respond significantly to the error-correction term. roles reverse after 1973; only the interest rate responds to the error-cor- rection term The error-correction term measures the difference between the actual money ock and the fitted value for the full (prc-1073, post-1073)seDisequilibrium Macroeconomics volves estimating a vector-autoregressive system of the first differ￾ence of each variable in the cointegration equation onto lagged values of the first differences of all of the variables plus the lagged value of the error-correction term (that is, the error term from the coin￾tegration regression). The discussion of money as a buffer stock and estimation of the money market in disequilibrium suggests some restrictions on the error-correction model. The simplest possible error-correction model regresses the first diIference of the variables in the cointe￾gration regression onto the error-correction term only; no lagged first differences are included. This is precisely the form of Equa￾tions (4), (5), (5a), and (5b). Such a simplistic formulation of the adjustment process may be inappropriate, especially if the adjustment of the variables is dis￾tributed over time; that is, this period’s error affects several future periods’ rates of change in the interest rate, real and nominal in￾come, and the price level. A modest extension assumes that such lagged adjustment to disequilibria does occur and that this periods error causes a perturbation in the adjustment path already in the pipeline for each variable because of previous periods’ errors. In sum, the rates of change of a particular variable depend on lagged rates of change in itself and the lagged error-correction term. Table 5 reports the results of the second approach, estimation of Equations (4), (5), (5a), #and (5b) with the inclusion of significant lagged rates of change in the dependent variable. Several interest￾ing observations emerge. First, the coefficients of the error-correc￾tion terms all have the expected sign.13 Moreover, these coefficients are all significantly different from zero at the 5% or 10% levels in the full-sample regressions. Second, the sub-sample regressions suggest that the pre- and post-1973 adjustment processes differ. Real and nominal income re￾spond significantly to the error-correction term before 1973. (The price level responds significantly at the 15% level.) The interest rate does not respond significantly to the error-correction term. Roles reverse after 1973; only the interest rate responds to the error-cor￾rection term. ‘Vhe error-correction term measures the difference between the actual money stock and the fitted values and, for the full (pre-1973, post-1973) sample period, corresponds to the errors from the cointegration equation reported on the first (sec￾ond, third) line of Table 4. 579