RE: st: RE: Cointegration analysis including exogenous variables

[Nick Cox <n.j.cox@durham.ac.uk>]

Sorry, no. I don't even know what I(0) means without looking it up. 

Nick 
n.j.cox@durham.ac.uk 


-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Beat Hintermann
Sent: 08 March 2011 15:53
To: statalist@hsphsun2.harvard.edu
Subject: Re: st: RE: Cointegration analysis including exogenous variables

i get your point. but i'm working with monthly weather measures, not 
long-term climate trends. i think it's safe to say that monthly 
heating-degree days and precipitation events are exogenous to today's 
fuel and electricity prices.

exogenous or not, they are I(0) and therefore not part of the 
cointegrating relationship. how should I take them into the model? any 
idea?



On 08.03.2011 16:35, Nick Cox wrote:
> 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
> n.j.cox@durham.ac.uk
>
> 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.

*
*   For searches and help try:
*   http://www.stata.com/help.cgi?search
*   http://www.stata.com/support/statalist/faq
*   http://www.ats.ucla.edu/stat/stata/