q1. Testing for cointegration is performed by:

Correct option is C

Correct Option: (C): Engel-Granger test
Explanation: Testing for cointegration is primarily performed using the Engel-Granger test, which is one of the foundational approaches for determining whether a long-run equilibrium relationship exists between non-stationary time series. The Engel-Granger methodology was introduced by Clive Granger and Robert Engle, and it involves a two-step residual-based approach.
Information Booster:
Engel-Granger test is a residual-based test designed for checking cointegration between two non-stationary series.

Cointegration occurs when non-stationary series move together in the long run despite being individually non-stationary.

A key requirement for applying the Engel-Granger test is that the variables must be integrated of the same order (usually I(1)).

If cointegration is found, it implies the existence of a long-term equilibrium between the variables.

This test is limited to bivariate cases; multivariate scenarios require Johansen's test.



If variables are cointegrated, an error-correction model (ECM) can be estimated to account for short-run dynamics while preserving long-run equilibrium.