Co-integration and Error Correction: Representation, Estimation, and Testing

Robert F. Engle and Clive W. J. Granger

Econometrica, 1987, vol. 55, issue 2, pages 251-76

Abstract: The relationship between cointegration and error correction models, first suggested by Granger, is here extended and used to develop estimation procedures, tests, and empirical examples. A vector of time series is said to be cointegrated with cointegrating vector a if each element is stationary only after differencing while linear combinations a8xt are themselves stationary. A representation theorem connects the moving average , autoregressive, and error correction representations for cointegrated systems. A simple but asymptotically efficient two-step estimator is proposed and applied. Tests for cointegration are suggested and examined by Monte Carlo simulation. A series of examples are presented. Copyright 1987 by The Econometric Society.

Date: 1987
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