Drownings by Falling into a Swimming Pool
11 March, 2016
Standard statistical methods applied to general time series might not work.
Cointegration extends regression methods to cover more cases.
I'll talk about implementation of solution methods.
I(0) time series are formally expressed
A series xt is called I(1) if
The I(1) vector xt is cointegrated if there exists a vector β such that
Simplified. The VECM extends this.
The I(1) series xt has cointegration rank 1 if
Require each series to be I(1).
α, β full column rank