Cointegration

📈 Economics By CampusDown Wiki Editorial Team Last updated October 23, 2026

Cointegration means non-stationary I(1) series have a stationary linear combination—a long-run equilibrium. Engle and Granger formalized it in 1987 and shared the 2003 Nobel.

Contents

1. Definition
2. Why
3. Frequently asked questions
4. References

Definition

Individually I(1) series whose combination is I(0).

📌 At a glance

Tests: Engle–Granger, Johansen
Model: ECM/VECM

Why

Avoids unit-root-driven spurious regression while keeping long-run information.

The “drunk and her dog” story (Murray 1994). Each wanders, but the distance between them stays stationary.

Frequently asked questions

Is high correlation cointegration?: No.

References

Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251–276.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2–3), 231–254.
Granger, C. W. J., & Newbold, P. (1974). Spurious regressions in econometrics. Journal of Econometrics, 2(2), 111–120.
The Royal Swedish Academy of Sciences (2003). The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2003 (nobelprize.org).
Murray, M. P. (1994). A drunk and her dog: An illustration of cointegration and error correction. The American Statistician, 48(1), 37–39.

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This article was last updated on October 23, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.