Question: The data file vec.dat contains 100 observations on two generated series of data, x and y. The variables are nonstationary and cointegrated without a constant

The data file vec.dat contains 100 observations on two generated series of data, x and y. The variables are nonstationary and cointegrated without a constant term. Save the cointegrating residuals (^e) and estimate the VEC model. As a check, the results for the case normalized on y are Dbyt ¼ 0:576ð^et1Þ

ðtÞ ð6:158Þ

Dbxt ¼ 0:450ð^et1Þ

ðtÞ ð4:448Þ

(a) The residuals from the error correction model should not be autocorrelated. Are they?

(b) Note that one of the error correction terms is negative and the other is positive.

Explain why this is necessary.

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