Which of the following are problems associated with the Engle-Granger approach to modelling using cointegrated data?
(I) The coefficients in the cointegrating relationship are hard to calculate
(ii) This method requires the researcher to assume that one variable is the dependent variable and the others are independent variables
(iii) The Engle-Granger technique can only detect one cointegrating relationship
(iv) Engle-Granger does not allow the testing of hypotheses involving the actual cointegrating relationship.
Consider the following vector error correction (VECM) model: yt = yt-5 + 1yt-1 + 2yt-2 + 3yt-3 + 4yt-4 + ut
Where yt is a k 1 vector of variables, and ut is a k 1 vector of disturbances.
Which of the following statements is true of the VECM?
Which of the following are probably valid criticisms of the Dickey Fuller methodology?
(I) The tests have a unit root under the null hypothesis and this may not be rejected due to insufficient information in the sample
(ii) the tests are poor at detecting a stationary process with a unit root close to the non-stationary boundary
(iii) the tests are highly complex to calculate in practice
(iv) the tests have low power in small samples
Which of the following are consequences of using non-stationary data in regressions?
(I) Shocks will be persistent
(II) It can lead to spurious regressions
(III) t-ratios will not follow a t-distribution
(IV) F-Statistic will not follow an F-distribution