Your Textbook States That There "Are Three Ways to Decide

question 12

Essay

Your textbook states that there "are three ways to decide if two variables can plausibly be
modeled as cointegrated: use expert knowledge and economic theory, graph the series
and see whether they appear to have a common stochastic trend, and perform statistical
tests for cointegration.All three ways should be used in practice." Accordingly you set
out to check whether (the log of)consumption and (the log of)personal disposable
income are cointegrated.You collect data for the sample period 1962:I to 1995:IV and
plot the two variables. (a)Using the first two methods to examine the series for cointegration, what do you think the
likely answer is?

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Definitions:

LIFO

An accounting methodology where the most recently produced or acquired inventory items are recorded as sold first.

Physical Flow

The movement and management of materials and products from procurement through production and delivery to customers.

Inventory

The goods and materials that a business holds for the ultimate goal of resale, representing one of the most important assets for companies dealing with physical products.