VECM Restrictions

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VECM Restrictions

Postby mrhode8 » Fri Aug 18, 2017 12:42 pm

I am running a VECM and trying to include an indicator variable in the cointegrating equation, but do not want it in the lagged differences part of the model. This indicator variable is not for a structural break, instead it is for a corporate information release event.

This is what I have so far:
EC(B,1)1 2 x1 x2 date

It yields me three equations and I only care about two (The ones for x1 and x2). Also I want to set the following coefficients equal to zero: C(1,5) C(1,6) C(2,5) C(2,6).

Is it possible to put the indicator variable in the cointegrating equation, but then restrict the coefficients on the other? Or is there another (perhaps better) way to do what I'm trying to accomplish?

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