Explaining Cointegration Analysis: Part 1

David Hendry and Katarina Juselius

The Energy Journal, 2000, vol. 21, issue 1, 1-42

Abstract: 'Classical' econometric theory assumes that observed data come from a stationary process, where means and variances are constant over time. Graphs of economic time series, and the historical record of economic forecasting, reveal the invalidity of such an assumption. Consequently, we discuss the importance of stationarity for empirical modeling and inference; describe the effects of incorrectly assuming stationarity; explain the basic concepts ofnon -stationarity; note some sources of non-stationarity; formulate a class of non -stationary processes (autoregressions with unit roots) that seem empirically relevant for analyzing economic time series; and show when an analysis can be transformed by means of differencing and cointegrating combinations so stationarity becomes a reasonable assumption. We then describe how to test for unit roots and cointegration. Monte Carlo simulations and empirical examples illustrate the analysis.

Keywords: Cointegration; empirical modeling; gasoline prices (search for similar items in EconPapers)
Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/ISSN0195-6574-EJ-Vol21-No1-1 (text/html)

Related works:
Journal Article: Explaining Cointegration Analysis: Part II (2001)
Journal Article: Explaining Cointegration Analysis: Part II (2001)
Journal Article: Explaining Cointegration Analysis: Part 1 (2000)
Working Paper: Explaining Cointegration Analysis: Part II (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:21:y:2000:i:1:p:1-42

DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No1-1

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().