Long-term Association in Time-Series through Cointegration Analysis: A Case Study
DOI:
https://doi.org/10.53739/samvad/2019/v18/146109Keywords:
Cointegration, Endogeneity, Error Correction Model (ECM), Stationarity, Vector Auto Regression (VAR).Abstract
The association among variables, especially when endogeneity is not defined, can be modelled using Optimum Least Square. In the case of endogeneity, Two Stage Least Square Method (TSLS) can be deployed. However, presence of Cointegration can jeopardise the existing association among the variables in both the cases. Even if, either Optimum Least Square (OLS) or TSLS can be estimated but the estimated coefficients in the presence of Cointegration will not be appropriate and may be misleading. Testing of cointegration is done by any of the three methods, which is further elaborated by Error Correction Models (ECM) to explore the nature of Cointegration relation.Downloads
Downloads
Additional Files
Published
How to Cite
Issue
Section
References
Akaike, H. (1974). A new look at the statistical model identification. IEEE Transactions on Automatic Control, 19, 716-723. https://doi.org/10.1109/TAC.1974.1100705
Brooks, Chris (2002). Introductory econometrics for finance. United Kingdom: Oxford University Press.
Engle, R.F. & Granger, C.W. (1987). Co-integration and error correction: Representation, estimation and testing. Econometrica, 55(2), 251-276. https://doi.org/10.2307/1913236
Engle, R.F. & Yoo, B.S. (1987). Forecasting and testing in co-integrated systems. Journal of econometrics, 35(1), 143-159. https://doi.org/10.1016/0304-4076(87)90085-6
Ghosh, Sajal (2010). Examining carbon emission economic growth nexus for India: A multivariate co-integration approach. Energy Policy, 38(6), 3008-3014. https://doi.org/10.1016/j.enpol.2010.01.040
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2-3), 231-254. https://doi.org/10.1016/0165-1889(88)90041-3
Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in gaussian vector autoregressive models. Econometrica, 59(6), 1551-1580. https://doi.org/10.2307/2938278
Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration-with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Schwarz, G. (1978). Estimating the dimension of a model. The Annals of Statistics, 6(2), 461-464. https://doi.org/10.1214/ aos/1176345415, https://doi.org/10.1214/aos/1176344136
