e) Consider two nonstationary time series processes, {x,} and {y,}. Assume that they are both integrated of order 1, {x,} ~I(1) and {y,}~I(1). Explain in detail the meaning of cointegration. How would you test for cointegration between the two processes?

e) Consider two nonstationary time series processes, {x,} and {y,}. Assume that they are both integrated of order 1, {x,} ~I(1) and {y,}~I(1). Explain in detail the meaning of cointegration. How would you test for cointegration between the two processes?

Algebra & Trigonometry with Analytic Geometry

13th Edition

ISBN:9781133382119

Author:Swokowski

Publisher:Swokowski

Chapter10: Sequences, Series, And Probability

Section10.2: Arithmetic Sequences

Problem 68E

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Question

e) Consider two nonstationary time series processes, {x,} and {y,}. Assume
that they are both integrated of order 1, {x,} ~I(1) and {y,}~I(1). Explain
in detail the meaning of cointegration. How would you test for cointegration
between the two processes?

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