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Find two cointegrating relationships

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Reference no: EM131480494

Question: Refer to the 3-month and 6-month Treasury Bills example discussed in the text. Suppose you also want to include the Federal Funds Rate (FFR) in the model. Obtain the data on FFR for comparable time period and estimate a VAR model for the three variables. You can obtain the data from the Federal Reserve Bank of St Louis.

(a) How many cointegrating relationships do you expect to find among the three-variables? Show the necessary calculations.

(b) Suppose you find two cointegrating relationships. How do you interpret them?

(c) Would you have to include one or two error correction terms in estimating the VAR?

Reference no: EM131480494

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