This is the first chapter of the third and last part of this book. The cointegration methodology is first presented for the case of single-equation models. The Engle-Granger two-step procedure is demonstrated by estimating a consumption function and its error-correction form for the United Kingdom as in Holden and Perman . In the Section 7.2, the method proposed by Phillips and Ouliaris  is applied to the same data set. The application and inferences of a vector error-correction model are saved for Chapter 8.
KeywordsCointegration Test Consumption Function Integration Order Money Demand Function Spurious Relationship
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