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    The cointegrating vector between Brent and WTI oil prices at a 5% significance level is 0 ≤ r ≤ 1 ≤ 2 ≤ 3. There are differences between the trace and maximum eigenvalue tests from Johansen and Juselius (1990), with the trace test finding 4 cointegrating vectors at 5% significance while the maximum eigenvalue test finds 3. The trace test should be chosen to determine the cointegrating relationship. The estimation involves 2 variables, Brent and WTI oil prices.

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    The cointegrating vector between Brent and WTI oil prices at a 5% significance level is 0 ≤ r ≤ 1 ≤ 2 ≤ 3. There are differences between the trace and maximum eigenvalue tests from Johansen and Juselius (1990), with the trace test finding 4 cointegrating vectors at 5% significance while the maximum eigenvalue test finds 3. The trace test should be chosen to determine the cointegrating relationship. The estimation involves 2 variables, Brent and WTI oil prices.

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    Questions 1 QUIZ MODELLING

    Uploaded by

    Tuna Purple
    The cointegrating vector between Brent and WTI oil prices at a 5% significance level is 0 ≤ r ≤ 1 ≤ 2 ≤ 3. There are differences between the trace and maximum eigenvalue tests from Johansen and Juselius (1990), with the trace test finding 4 cointegrating vectors at 5% significance while the maximum eigenvalue test finds 3. The trace test should be chosen to determine the cointegrating relationship. The estimation involves 2 variables, Brent and WTI oil prices.

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    MUHAMMAD AL-IMRAN 75819

    Questions 1
    1. Determine the cointegrating vector from the table of Brent and WTI oil prices.
    The cointegrating vector at 5% significance level is r=0, r ≤ 1, r ≤ 2, r ≤ 3.

    2. Any differences in the trace and maximum eigenvalue of Johansen and Juselius (1990)
    results?

    Yes. In terms of the trace and the greatest eigenvalue, there is a difference between Johansen and
    Juselius' conclusions. When the significance level is 5%, there are 4 cointegrating vectors for the
    trace test, but there are only 3 cointegrating vectors when the significance level is the highest.
    Eigenvalue analysis When compared to the trace test, the result for the greatest eigenvalue is
    equally modest.

    3. From no 2 answers – which one to choose? Trace or Maximum Eigenvalue as to


    determined the cointegrating relationship.

    Trace test is to be chosen to determine the cointegrating relationship.

    4. How many variables actually involved for the estimation?

    2 variables involved which are the Brent and WTI oil prices

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