Quick Reference

Two or more series of non-stationary random variables are cointegrated if there exists a stationary linear combination of these variables. Cointegrated series ‘drift together’ at roughly the same rate. More generally, if series X and Y are both integrated of order b, denoted I(b), and Z = Y − βX is I(d) with d < b for some constant β, then X and Y are cointegrated with the order of cointegration (b − d); if (b − d) is a fraction then X and Y are fractionally cointegrated.

Subjects: Economics.

Reference entries