Lecture 11 summary · April 2, 2027
A stable relation between moving levels
Complete chapter · Laboratory ch11 · Practice · All summaries
The economic question
Moving levels can share a stationary spread. The long-run relation and short-run adjustment are distinct, and a change forecast must be returned to the current level.
Central relation
Individual problem
The relation is Y = 2.5X + 4. Current X is twenty and Y sixty-four. Adjustment is negative 0.3; short-run coefficient 1.2; expected change in X is two. Forecast change and level.
Worked reasoning
The equilibrium error is ten. Expected change is negative three plus 2.4, or negative 0.6. The level forecast is 63.4.
A consequential failure
Cointegration is declared from level R squared, ordinary DF references are used on estimated residuals, or a change is reported as a level.
Repair
Establish integration and deterministic terms, use a cointegration-appropriate reference, and add predicted changes to the current observed level.