Hi!
I'm currently trying to estimate a VAR with 3 variables - consumption, investment and a credit spread. I have inspected the variables and run ADF tests to determine that they are in-fact trend-stationary rather than processes with a unit root. On running a Johansen test to check if they cointegrate, I find that the LR equilibrium matrix has a rank of 1. I have 2 questions:
1. Does it make sense to run a cointegration test on trend stationary variables?
2. In order to estimate the VAR, should I detrend the variables and use the detrended data in my estimation?
Any help would be much appreciated!
I'm currently trying to estimate a VAR with 3 variables - consumption, investment and a credit spread. I have inspected the variables and run ADF tests to determine that they are in-fact trend-stationary rather than processes with a unit root. On running a Johansen test to check if they cointegrate, I find that the LR equilibrium matrix has a rank of 1. I have 2 questions:
1. Does it make sense to run a cointegration test on trend stationary variables?
2. In order to estimate the VAR, should I detrend the variables and use the detrended data in my estimation?
Any help would be much appreciated!
