Dear Stata list,
I am trying to estimate a vector error correction model but I face the
following problem:
Let y(t) be a column vector of 2 endogenous variables, [y1(t) y2(t)]',
and let x(t) be an exogenous covariate. Also, let z(t) be a column
vector of all the variables, i.e. z(t) = [y1(t) y2(t) x(t)]'
I want to estimate the following VECM (D is the first-difference
operator):
Dy(t) = B0 * Dx(t) + B1 * Dz(t-1) + (a*b')*z(t-1)
so effectively one exogenous variable appears in the cointegrating
vector.
I checked the manual for the command VEC but I couldn't figure out how
to estimate this model. One solution could be to treat x(t) as
endogenous, restrict the speed of adjustment parameter of x(t) to 0 and
impose the restrictions that the short-run parameters in the x(t)
equation are all 0. But again, I couldn't see how to impose constraints
with regards to the short-run parameters.
Any help is highly appreciated.
Vasilis
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