Chartered Financial Analyst Level 2
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An analyst regresses changes in an exchange rate over time on the two countries' inflation rate differential. While each of the two time series has a unit root, the time series are not cointegrated. This implies that the error term in the linear regression will:
An analyst regresses changes in an exchange rate over time on the two countries' inflation rate differential. While each of the two time series has a unit root, the time series are not cointegrated. This implies that the error term in the linear regression will:
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A
be covariance stationary and the regression coefficients will be consistent.
B
be covariance stationary but the regression coefficients will not be consistent.
C
not be covariance stationary and the regression coefficients will not be consistent.
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