Question
Consider two quarterly the unemployment rate (UNEMPt) and the inflation rate (INFt) that are both integrated of order one (I (1)). Suppose that the unemployment
Consider two quarterly the unemployment rate (UNEMPt) and the inflation rate (INFt) that are both integrated of order one (I (1)). Suppose that the unemployment rate and the inflation rate are cointegrated. Describe in detail how you would modify this VAR model to a Vector Error Correction (VEC) model and explain the significance of the error correction term.
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Foundations of Macroeconomics
Authors: Robin Bade, Michael Parkin
6th edition
132831007, 978-0132831000
