Cointegration: Representation and Testing

Imad A. Moosa and Razzaque H. Bhatti
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Imad A. Moosa: La Trobe University
Razzaque H. Bhatti: University of Azad Jammu and Kashmir

Chapter 8 in International Parity Conditions, 1997, pp 167-194 from Palgrave Macmillan

Abstract: Abstract A simple cointegrating regression (normally including a constant term) may be written as (8.1) y t = α + β x t + ε t $$ {y_t} = \alpha + \beta {x_t} + {\varepsilon _t} $$ The cointegrating regression is sometimes referred to as the ‘equilibrium model’. However, equilibrium in this sense is different from what is implied by rational expectations models. It is arguable that the cointegrating regression does not necessarily imply a long-run relationship: economic theory must support such a relationship. Table 8.1 shows some cointegrating regressions that are frequently encountered in the literature on international parity conditions (lower-case letters imply natural logarithms). Some possible coefficient restrictions are also given.

Keywords: Error Correction; Unit Root; Unit Root Test; Cointegration Test; Error Correction Model (search for similar items in EconPapers)
Date: 1997
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DOI: 10.1007/978-1-349-25523-8_8

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