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st: Engle and Yoo's co-integration technique


From   InnaHaller@web.de
To   statalist@hsphsun2.harvard.edu
Subject   st: Engle and Yoo's co-integration technique
Date   Tue, 21 Jun 2005 13:23:54 +0200

Dear Sir or Madam,

I have a Problem with the second Step of Engle and Yoo's co-integration technique. My starting point is function: 
                                                  Yt= a + a1 Kt +a2 Lt+ a3 Mt + a4Pt+a5St+a6Dumm1 +a7Dumm2+a8Dumm3 +qt (*).
Dumm1,2,3:   Dummy variables
qt:                 error term
Y:                   Output
Xt=(Kt, Lt, Mt, Pt, St): Input ( Kapital, Labour, Standards, Patents, Standards, Licences)

Step1.   The Estimation of the coefficients of the regression (*) by OLS. (no problem)

Delta Yt=Yt-Yt-1.
Step2.   Error correction Model: Delta Yt= b(L) DeltaYt-1 + T(L) Delta Xt +c qt-1 +ut.
              b(L ): Lag-Polynom
              T(L): Lag-Matrix.
              qt-1: error correction term from step 1.

My question is: How can I determine number of lags of DeltaYt-1 and number of lags of variables: Kt, Lt, Mt, Pt, St in the error correction model?

Best regards
Inna Haller
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