Equation Balance in Time Series Analysis: What It Is and How to Apply It

The recent symposium in Political Analysis (volume 24, number 1) on potential problems with the use of the generalized error correction model (GECM) raised several important issues, not all of which were fully resolved. One of those is the issue of equation balance. While it is true that most of the participants in the symposium agreed that ensuring equation balance is important, there has not been a consistent and agreed-upon definition of what equation balance is, or an understanding of exactly why it is important or how it can be applied. In this paper, we treat equation balance as a theoretical matter, not merely an empirical one --- including two ways to use the concept of equation balance to test theoretical propositions before data have been gathered and before any model has been estimated. We illustrate our ideas with two influential time-series studies.