A) What Is Cointegration

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The Answer is A) Variables that are nonstationary to the same degree.
B)

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Run the regression: Y_t = Bo + B1 X_t + e_t

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Run the augmented Dickey-Fuller regression:
(e_t - e_t-1) = Bo + B₁e_t-1+ B₂(e_t-1 - e_t-2) + z_t

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perform a negative sign test on B1
1) Ho: B1 = 0 (e is nonstationary) Ha: B1 < 0 (e is stationary)(X and Y are not cointegrated) (X and Y are cointegrated)
2) 5%
3) If t-ratio < -tc*, reject Ho
4) the t-ratio is the usual one, but tc* is about 60% higher than tc from the usual t table. As n approaches infinity tc* approaches 2.86 from higher levels.
5) state the results of the test

A) What Is Cointegration

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A) What Is Cointegration

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Correct Answer:VerifiedShow Answer

Correct Answer:
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