Q4 Let (1,t E ) be an i.i.d. process with E(et) = [8] and variance covariance matrix ?].
Let the initial values of xt be x1,0 = x2,0 = 0 and let [ xi,t _ [ 1 [ X24-1 xi,t-i [ 614 I X2,t 0 1 E2,t
(a) Show that the process above is non-stationary. (10 marks)
(b) Show that it is cointegrated and state its cointegration vector. (10 marks)
(c) How would you estimate the cointegration vector given a dataset (xi,i, x2,1), • • • (x1,T, x2,T)? (10 marks)
