BU5565 Assignment

Carbon prices - Cointegration - Engle Granger procedureSUBMISSION DEADLINE: 07/03/2017, 5pm Word limit: 1000 words (excluding tables).Please include word count. 1. Download dataset “Assignment.wf1" from MyAberdeen. The workfile contains two time series: the logs of two carbon price series. LEUA is the log of the price for a pollution permit traded in the European Union Emission Trading Scheme; LCER is the log ofa so-called Certified Emission Reduction permit. The data is at daily frequency and the period of observation is 01/06/2007-30/12/201 1. This assignment deals with testing if the two series are cointegrated. 2. Describe the Engle Granger cointegration test. 3. Use the full sample first. Perform the Engle Granger cointegration test implemented in EViews. Write a short summary of your results and include the original EViews output. 4. Perform, for the full sample, the individual steps of the Engle Granger procedure (see e.g. the textbook by Walter Enders, page 335, Step 1 and Step 2, or Lecture 3, Slide 35, Step 1.).1 Write a short summary of your results and include original EViews outputs. Compare the results to those of question 3. 5. Now consider the shorter subsample 01/06/2007-30/06/2010. Redo question 3 and 4. Use a significance level of 10%. Discuss your results. 1. 1 Hint: residuals from a regression can be calculated using the Proc menu in the Equation object, “Make Residual Series" command. Please note that you do not need to estimate the error correction model.