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Unformatted text preview: Next, we defne a structural relationship between two nonstationary time series x t = 01 + 11 z t + 1 t w t = 02 + 12 z t + 2 t z t = t X i =0 z t i = t X i =0 ( z + 1 t ) (6) This common Factor yields a structural relationship z t = w t 02 12 2 t (7) In Fact we could assume that 02 0 and 12 1. Charles B. Moss () NonStationary Time Series and Cointegration December 6, 2010 5 / 6 At the least x t = 01 02 12 + 11 12 w t + [ 1 t 12 2 t ] x t = + 1 w t + t (8) The critical point is that the variance in Equation 8 is bounded (or the error is stationary). Charles B. Moss () NonStationary Time Series and Cointegration December 6, 2010 6 / 6...
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 Spring '10
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