Explain the conceptsof non-stationarity and cointegration, and how are they connected.Illustrate how one can test for cointegration using the two-step Engle and Granger approach.

You are given the monthly time series of the spot British pound exchange rate against the US dollar (denoted as GBP to USD) and the Consumer Price Indices, which proxy the general price levels, for the UK and the US (denoted respectively as UKCPI and USCPI) for the period of January 1991-August 2020.

a)Explain the conceptsof non-stationarity and cointegration, and how are they connected.

Illustrate how one can test for cointegration using the two-step Engle and Granger approach.

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