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Explaining Cointegration Analysis: Part II

Abstract:
We describe the concept of cointegration, its implications in modelling and forecasting, and discuss inference procedures appropriate in integrated-cointegrated vector autoregressive processes (VARs). Particular attention is paid to the properties of VARs, to the modelling of deterministic terms, and to the determination of the number of cointegration vectors. The analysis is illustrated by empirical examples.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Other

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
C59 - Econometric Modeling: Other

Keywords: VAR, deterministic components, Rank determination, gasoline prices, cointegration

DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No1-4


Published in Volume22, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.