Cointegration

Klaus Neusser ()

Chapter 16 in Time Series Econometrics, 2016, pp 295-324 from Springer

Abstract: Abstract As already mentioned in Chap. 7 , many raw economic time series are nonstationary and become stationary only after some transformation. The most common of these transformations is the formation of differences, perhaps after having taken logs. In most cases first differences are sufficient to achieve stationarity. The stationarized series can then be analyzed in the context of VAR models as explained in the previous chapters. However, many economic theories are formalized in terms of the original series so that we may want to use the VAR methodology to infer also the behavior of the untransformed series. Yet, by taking first differences we loose probably important information on the levels. Thus, it seems worthwhile to develop an approach which allows us to take the information on the levels into account and at the same time take care of the nonstationary character of the variables. The concept of cointegration tries to achieve this double requirement.

Keywords: Unit Root; Real Interest Rate; Vector Error Correction Model; Cointegration Vector; Stochastic Trend (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/978-3-319-32862-1_16

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