st: Cointegration analysis including exogenous variables

[Beat Hintermann <b.hintermann@unibas.ch>]

Hello

I would like to estimate the cointegrating relationship between 3 I(1) 
variables, but in the presence of exogenous I(0) variables. 
Specifically, I want to estimate the long-term relationship between 
electricity, gas and coal prices, but taking into account exogenous 
weather shocks (like heating degree days or precipitation, stuff that is 
truly exogenous).

From what I gathered in the Statalist archive, it is not advisable (and 
perhaps even impossible) to include exogenous and/or I(0) variables into 
the vec model framework. But since the weather definitely influences 
electricity and fuel prices, I don't see how ignoring this information 
will give me the best result.

Thanks in advance for any helpful advice

Best regards,

Beat Hintermann



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