Adjusting standard errors for generated regressors

[paldama]

Hi everyone,

Following Hamilton "Why You Should Never Use the HP Filter" (2017) I am estimating output gap using a simple OLS regression on (log) Real GDP and taking the residuals as a regressor in a second-step regression.

Consider a first-step dynamic regression on x(t):

x(t+h) = c + x(t) + x(t-1)+ ... + x(t-p) + Espilon(t)

where h=8 and p=4 on quarterly data (Hamilton's advice). The residuals are then interpreted as the cyclical component of x(t).

Now, if one wants to use the residuals into a second step regression (let's say a Taylor rule or a fiscal rule), he will have to correct the variance-covariance matrix for the generated regressors problem in the second step.

Is there a way into Eviews to correct manually (by programming) this var-covar matrix after having estimated the second-step regression and re-display the results?

Thanks in advance for any help!

[EViews Gareth]

You cannot change the actual covariance matrix inside the equation. However you can display a table with whatever values you want in it. Take a look at the HCCM add-in's code for an example.
http://www.eviews.com/Addins/addins.shtml