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Time Series Assignment 2 Question 2 Purchasing Power Parity (PPP) says that prices and exchange rates will remain in equilibrium

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Assignment 2

Question 2
Purchasing Power Parity (PPP) says that prices and exchange rates will remain in equilibrium. Use the file ppp.dta which contains data on the UK CPI, the US CPI and the $/£ exchange rate to answer the following.
(a) Assess the stationarity of the time series and their order of integration.
(b) Explain how PPP implies that the 3 variables are cointegrated.
(c) Test whether they are, in fact, cointegrated.
(d) Regardless of the result of part c, estimate an error-correction model. Interpret the coefficients.
(e) There is a weaker form of PPP which states that inflation in both countries and the change in the exchange rate have an equilibrium relationship. Test for the presence of this equilibrium relationship.
(f) Estimate the resulting error correction model that would hold in the presence of weak PPP. Interpret the coefficients.