EViews.com

Hi
I have got this test result after testing for cointegration between inflation and import prices. My question is how come EViews says there are two cointegrations in these two variables? Does this mean there is no cointegration between the two? Thanks

This means that your variables may be stationary (the cointegration test is at least reading them as stationary) because the Cointegration rank is equal to the number of variables. If the variables are stationary, there can't be any cointegration. Usually, cointegration exists in I(1) variables implying that the variables are not stationary at level.

If your variables are stationary, you don't need to apply VECM. You can use VAR in levels. But, remember that this cointegration test can be sensitive to trend specifications. You have to be careful about which trend or constant variables to include. Don't rely only on the Information Criteria, look at the graphs to check which specification would be accurate.

This link gives all the information related to this topic: https://spureconomics.com/vector-error- ... cm-theory/. Look under the heading "Choosing between VAR and VECM".