Question: Consider the VAR(1): ]-[ where {at} is a vector white noise process. (a) How can you verify that x and yt are cointegrated? (b)

Consider the VAR(1): ]-[ where {at} is a vector white noise process.

Consider the VAR(1): ]-[ where {at} is a vector white noise process. (a) How can you verify that x and yt are cointegrated? (b) Write this model in error correction form. Xt Yt 0.4 0.3 0.8 0.6 Xt-1 Yt-1 ]+[eu] (c) Compute the speed of adjustment coefficient a and the cointegrating vector 3 where the 3 on xt is normalized to 1.

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