Transcription of 1 Cointegration.
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1 Cointegration.
ECONOMICS 266, Spring, 1997 Bent E. S rensenSeptember 19, 20191 survey by Campbell and Perron (1991) is a very good supplement to this chapter - for fur-ther study read Watson s survey for the handbook of econometrics Vol. IV, and for multivariatemodels use Johansen s (1995) theory is definitely the innovation in theoretical econometrics that has cre-ated the most interest among economists in the last decade. The definition in the simple caseof 2 time seriesxtandyt, that are both integrated of order one (this is abbreviated I(1), andmeans that the process contains a unit root), is the following:Definition:xtandytare said to be cointegrated if there exists a parameter such thatut=yt xtis a stationary turns out to be a pathbreaking way of looking at time series.
1 Cointegration. The survey by Campbell and Perron (1991) is a very good supplement to this chapter - for fur-ther study read Watson’s survey for the handbook of econometrics Vol. IV, and for multivariate models use Johansen’s (1995) book. Cointegration theory is de nitely the innovation in theoretical econometrics that has cre-
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