2.2.3 Co-integration Test
The EG two-step method is a common method for testing the co-integration relationship between time series, which was proposed by Engle and Granger in 1987(Engle & Granger, 1987). The test procedure of this method is:
The first step is to use the ordinary least square method(OLS) to regress multiple variables and get a residual sequence;
The second step is to conduct ADF unit root test on the residual sequence obtained in the first step. If the residual sequence is stationary, it is proved that the variables are co-integrated.