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st: RE: Cointegration analysis including exogenous variables
From
Nick Cox <[email protected]>
To
"'[email protected]'" <[email protected]>
Subject
st: RE: Cointegration analysis including exogenous variables
Date
Tue, 8 Mar 2011 15:35:08 +0000
Treating the weather as "truly exogenous" is not the best current science, although I imagine you don't want to build climate change into your model.
Nick
[email protected]
Beat Hintermann
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.
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