Co‐Integration in Systems of Equations
Co‐integration in systems of equations is analysed. Linear co‐integrated systems are expressed in error‐correction form and maximum likelihood estimation and inference for co‐integrating vectors are discussed, focusing on the approach proposed by Johansen (1988). Methods of finding the co‐integrating rank are considered and circumstances in which dynamic single‐equation methods will be equivalent to systems methods are demonstrated. The analysis is again illustrated by a number of applications and evidence from simulation experiments. Forecasting in co‐integrated systems is noted.
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