Ch. 23 Cointegration 1 Introduction An important property of (1) variables is that there can be linear combinations of theses variables that are I(O). If this is so then these variables are said to be cointegrated. Suppose that we consider two variables Yt and Xt that are I(1) (For example, Yt= Yt-1+ St and Xt= Xi-1+nt.)Then, Yt and Xt are said to be cointegrated if there exists a B such
Chapter 12 Time Series Analysis 12.1 Stochastic processes A stochastic process is a family of random variables {Xt,t ET}. Example{St,t 0, 1,2,...} where St i=o X; and iid(0,2). St has a different distribution at each point t