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RE: st: RE: Cointegration analysis including exogenous variables


From   DE SOUZA Eric <[email protected]>
To   "[email protected]" <[email protected]>
Subject   RE: st: RE: Cointegration analysis including exogenous variables
Date   Tue, 8 Mar 2011 17:59:56 +0100

Curious to know how Eviews incorporates the exogenous regressors because such an introduction affects the distribution of the rank test statistics unless they are I(0) AND introduced in a specific fashion. See
ANDERS RAHBEK and ROCCO MOSCONI, Cointegration rank inference with stationary regressors in VAR models, Econometrics Journal (1999), volume 2, pp. 76-91.


Eric de Souza
College of Europe
Brugge (Bruges), Belgium
http://www.coleurope.eu



-----Original Message-----
From: [email protected] [mailto:[email protected]] On Behalf Of Syed Basher
Sent: 08 March 2011 17:25
To: [email protected]
Subject: Re: st: RE: Cointegration analysis including exogenous variables

This may not be relevant for Stata users, but the problem you described is easy to handle in other packages. For example, Eviews has an option to include exogenous variables in cointegrating model. If you do not mind sharing your data, I can attempt to estimate it for you in Eviews.

 Syed Basher
Doha, Qatar.




----- Original Message ----
From: Beat Hintermann <[email protected]>
To: [email protected]
Sent: Tue, March 8, 2011 6:53:13 PM
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
> [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.
>
>
> *
> *   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/

--
Beat Hintermann
Assistant Professor
University of Basel, Faculty of Business and Economics (WWZ) Peter Merian-Weg 6, 4002 Basel, Switzerland Tel. +41 61 267 3339
------------------------------------------

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