QUESTION 2 (10 MARKS) I. To examine the stationarity of the variables X and Z, unit root tests have been conducted, and

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Question 2 10 Marks I To Examine The Stationarity Of The Variables X And Z Unit Root Tests Have Been Conducted And 1 (97.93 KiB) Viewed 11 times

QUESTION 2 (10 MARKS) I. To examine the stationarity of the variables X and Z, unit root tests have been conducted, and the results show as follows: Null Hypothesis: Xhas a unit root Exogenous: Constant, Linear Trend Lag Length: 7 (Automatic - based on AIC, maxlag=17) Augmented Dickey-Fuller test statistic Test critical values 1% level 5% level 10% level "Mackinnon (1996) one-sided p-values Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level Null Hypothesis: Z has a unit root T Exogenous: Constant, Linear Trend Lag Length: 0 (Automatic-based on AIC, maxdag=17) "MacKinnon (1996) one-sided p-values. 1-Statistic -0.643648 -3.976819 -3.418981 -3.132041 II. Prob -3.418852 -3.131965 0.9756 1-Statistic -0.046144 0.9956 -3.976554 Prob. Null Hypothesis: D00 has a unit root Exogenous: Constant, Linear Trend Lag Length: 6 (Automatic-based on AIC, maxdag 17) Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level "Mackinnon (1996) one-sided p-values. Augmented Dickey-Fuller test statistic Test critical values: 1% level Null Hypothesis: DZ) has a unit root Exogenous: Constant, Linear Trend Lag Length: 0 (Automatic-based on AIC, maxdag=17) 5% level 10% level "Mackinnon (1996) one-sided p-values. +-Statistic Prob. 50288 0.0000 The Cointegration tests for variables X and Z are reported as follows: -3.976819 -3.418981 -3132041 What is the order of integration for variables X and Z? State clearly your null and alternative hypotheses, and explain your answers. (2 Marks) 1-Statistic Prob. -23.58214 -3.976591 -3.418870 -3.131976 0.0000 Dependent Variable: X Method: Least Squares Date: 08/07/20 Time: 14:25) Sample: 1 500 Included observations: 500 Variable. C R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient Std. Error 1-Statistic Prob. 3.844557 0.091861 41.85182 0.0000 0.223989 0.001377 162.6205 0.0000 0.981517 Mean dependent var 0.981480 S.D. dependent var 1.009149 Akaike info criterion 507 1538 Schwarz criterion -713.0208 Hannan-Quinn criter. 26445.41 Durbin-Watson stat 0.000000 Null Hypothesis: RESID_XZ has a unit root Exogenous: None Lag Length: 0 (Automatic- based on AIC, maxlag=17) Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level *Mackinnon (1996) one-sided p-values. t-Statistic -20.99326 -2.569604 -1.941459 -1.616273 16.85593 7.415342 2.860083 2.876942 2.866699 1.876069 Prob 0.0000 a) Based on the reports shown both in I and II, decide what method was applied for the Cointegration tests. And explain the steps have been taken to conduct the Cointegration Test. (3 Marks) b) Based on the test statistics shown in the above analysis reports, evaluate whether long- term equilibrium relationship exists between variables X and Z. Explain how you applied these statistics to make these judgments. (3 Marks) c) The following table reports the summary results from the Error Correction Model.