Q3

Question 1

ECM stands for

Answer 1

Error correction mechanism

Question 2

How do you visually inspect for cointegration?

Answer 2

If two variables follow same nonstationary pattern over time

Question 3

I(0) means

Answer 3

Stationary

Question 4

I(1) means

Answer 4

Nonstationary

Question 5

Formal test for cointegration

Answer 5

Engle-Granger

Question 6

What is cointegration?

Answer 6

Where regression of nonstationary time series on another does not result in a false regression. Means the two series have a long-term relationship

Question 7

What are the four steps for performing EG procedure?

Answer 7

1. Get ECM and perform cointegration test
2. Indenting cointegration equation and which variable it is for
3. Specify Autoregressive Distributed Lag Model (ARDL)
4. Search for parsimonious ARDL

Question 8

General ARDL model equation

Answer 8

Yt = B + BoXt + B1Xt-1 … + BqXt-q + y1Yt-1 … + ypYt-p + Ut

Question 9

What is the name of test performed in EG procedure?

Answer 9

Cointegration regression augmented Dickey Fuller - CRADF

Question 10

What is the cointegration equation?

Answer 10

Lc = cons + ly + error
Error = lc - (cons + ly) = ECM

Question 11

Null hypothesis for CRADF

Answer 11

Unit root I.e. no cointegration

Question 12

Alternative hypothesis for CRADF

Answer 12

Stationary and cointegrated