COINTEGRATION TEST WITHOUT STRUCTURAL BREAKS

Situations where the error term is stationary but not the dependent and independent variables is categorized as cointegration. Cointegration was first conceived by Clive Granger (1981) and galvanized further in the year 1987 by Clive Grange and Robert Engle. Thus, testing for the presence of cointegration has become a dominant requirement for modelling non-stationary variables. Cointegration arises if the two variables have a long-term, or equilibrium, relationship which, in essence, is the underpinning for much of formal economic theory – for instance, such as the Fisher’s QTM, Fisher’s equation defining the real interest rate, theory of Purchasing Power Parity, the consumption function theory, and many others.

The dropbox folder contains exercises, research papers and industry cases that will be covered in linear regression.