Section C: Empirical Questions; [15 Marks] In which situation can a cointegration test be performed? Write down its null hypothesis. Also, refer to the given table and interpret the results. [Marks] Hypothesized No. of CE(s) Eigenvalue Trace Statistic 0.05 Critical Value Prod None At Most 1 At Most 2 At Most 3 0.377516 0.264703 0.147492 0.024225 39.59017 20.15466 7.547939 1.005467 47.85613 29.79707 15.49471 3.841466 0.2375 0.4124 0.5149 0.3160
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Confirm this first with unit-root tests (ADF, PP, KPSS). Cointegration testing is appropriate when you suspect a long-run equilibrium relationship among two or more nonstationary series. Show more…
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