Transcription of Stationarity and Cointegration analysis
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Stationarity and Cointegration analysis
Stationarityand Cointegration analysisBy Tinashe Unit root testing Cointegration Vector Auto-regressions Cointegration in multivariate systems Introduction Stationarityorotherwiseofaseriescanstron glyinfluenceitsbehaviourandproperties. Forinstancea shock diesawaywithstationaritybutispersistenti fnonstationary. Spuriousregressions -ifvariablesaretrendedovertimeitmayprodu cesignificantcoefficientsandhighR2butiti sameaninglessrelationship. Twotypesoftrend StochasticTrend-[randomwalk] DeterministicTrend Whydistinguishbetweenthem? Maylookthesamebuthaveverydifferentproper tiesDeterministic trendsDeterministic trends Taking the first difference of a trend stationary series removes the non-stationaritybut at the cost of introducing an MA(1) process in the invertible MA process cannot be written as an AR processDeterministic trendSto
Multivariate cointegration •Johansen and Jesilius (1988) and Stock and Watson (1988) develop max likelihood procedure to test for Cointegration •Their test could estimate and test the number of cointegration equations and to test restricted versions of the cointegrating vectors and speeds of …
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