Module II — Johansen & VECM

Status: outline. Lecture body not authored.

VAR, VECM, Π = αβ', cointegration rank, Trace test, Maximum Eigenvalue, common stochastic trends, and multiple cointegrating vectors.

Unique process — Johansen discovers a space, not the tradable basket

Johansen estimates a cointegrating space. It does not automatically deliver the best tradable basket.