Cointegration of Interest Rate- The Case of Albania

Abstract

In economic theories, the study of non-stationary time series, takes a special place. These series may have causal links between them in the short and medium term. In this paper, attention focuses on discovering links in the long term. If there are long-term bonds between the series then the series are said that cointegrate. Various tests, such as Engel-Granger's two-steps procedure, three steps Engle-Yoo method, Saikkonen method and Johansen method, will be analyzed. For each of these methods, advantages and disadvantages are given. In the last part of the paper, these methods are applied for real series such as the interest rate on credit and deposit interest ratesfor Albania.