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March/April 1991, 
Vol. 73, No. 2
Posted 1991-03-01

A Primer on Cointegration with an Application to Money and Income

by David A. Dickey, Dennis W. Jansen, and Daniel L. Thornton

David A. Dickey, Dennis W. Jansen and Daniel L. Thornton discuss the statistical or econometric concept of “cointegration.” The authors outline the relationship between cointegration and tests for cointegration and the concept of a unit root and tests for a unit root, widely used in univariate analyses, and provide a framework for relating the statistic concept to economic analysis. Finally, the authors detail three commonly used tests for cointegration and apply these tests to U.S. data on output, interest rates and various monetary aggregates. Their empirical analysis suggests that there is a stable long-run relationship between output, interest rates and several monetary aggregates, including M1 and the adjusted monetary base.