Algebra of Integrated Time Series: Evidence from Unit Root Analysis

Hari Luitel () and Gerry J. Mahar ()
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Gerry J. Mahar: Algoma University

International Advances in Economic Research, 2016, vol. 22, issue 2, No 6, 199-209

Abstract: Abstract It is argued if xt ~ I(1) and yt ~ I(1), then running a regression xt on yt would produce spurious results because e t would generally be I(1). However, there may exist a ‘b’ such that e t = x t - by t is I(0), then running a regression x t on y t would not produce spurious results. This special case of two integrated time series is known in the literature as cointegration. In this particular case, x t and y t are said to be cointegrated. In our review of the development of the concept of cointegration, we identified that the underlying reason for this special case to arise is the proposition that if x t ~ I(d x ), y t ~ I(d y ), then z t = bx t + cy t ~ I(max(d x ,d y )). In this research, we offer evidence against this proposition.

Keywords: Cointegration analysis; Unit root; Time series; Econometric modeling; Economic policy; Policy analysis (search for similar items in EconPapers)
JEL-codes: C22 C50 E60 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s11294-016-9577-9

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