Cointegrating the Long-Run Relationship of Economic Variables

Abstract

The economic non-stationary time series often have long-run relationships. The cointegration relationship of time variables describes the continuous adaptation to their equilibrium in the long run. This paper presents the ways of analysing and modelling the cointegration of time series. The Error Correction Model, as the main tool, and the Engle-Granger method is used to estimate the cointegration in the case of the long-run relationship between the quarterly GDP and the Final Consumption in Romania during the period 1995 – 2019. The practical importance of applying the cointegrating model consists in knowing the effect of GDP in the long term.