Longdata

Assignemnt on integration and cointegration

Due Wed., Oct 8

This is a pretty easy exercise, only involving data.

0. Run spurious.do (on web) and satisfy yourself that the generated x
   and y appear related by regression, but are not cointegrated (the
   dfuller test on the residuals).  Make sure to set the seed so we do
   not all get the same results.

1. Using either eviews or stata, and either british or american data,
   find one series that each might be integrated (I suggest you use
   some economic variable that is a level, not a change). Test for it
   being I(1), that is, it has a unit root but its first difference
   does not. Do this using the various tests in stata and/or
   eviews (all variants of correct tests). Do the various tests differ
   very much?

2. Find another economic variable that also might be I(1) and test as
    in q. 1.  You need not use the entire battery of tests.

3. Test for whther the two series are cointegrated.

4. IF they are, fit a one way error correction model and try the Engle
   Granger two step method.