ARMA model with dummy variable

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minijim
Posts: 14
Joined: Sun Dec 20, 2009 10:01 am

ARMA model with dummy variable

Postby minijim » Tue Dec 29, 2009 11:45 am

Hi,

I tried to run an equation with an autoregressive model and a dummy variable (in order to be able to observe a shock in the regression after the period 34)
equation eq.ls data c dummy ar(1) ar(1)*dummy
with dummy equal to : series dummy=(@trend>34)

but there is an error message "AR is not defined".
I think I could use the equation
equation eq.ls data c dummy data(-1) data(-1)*dummy
instead of the first one, but I would like to get the inversed roots of the AR polynomial of the regression to check the stability of the model (and I am not sure that the use of data(-1) would be a great idea for the model at the period 35).

Is there a way to run the regression with the dummy variable and the AR terms ?

Thanks in advance
(i have eviews version 5)

EViews Gareth
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Re: ARMA model with dummy variable

Postby EViews Gareth » Tue Dec 29, 2009 11:52 am

I can't think of a way to do this in EViews 5.
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EViews Glenn
EViews Developer
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Joined: Wed Oct 15, 2008 9:17 am

Re: ARMA model with dummy variable

Postby EViews Glenn » Tue Dec 29, 2009 3:07 pm

I think this will do it...It's the translation of the model into NLLS with provisions for dummies in the AR process. I've dashed this off pretty quickly so you should check that I have all of the terms in the right place.

smpl if @trend<>35
equation eq1.ls y=(c(3)+c(4)*dummy)*y(-1)+(1-(c(3)+c(4)*dummy))*c(1)+(x-(c(3)+c(4)*dummy)*x(-1))*c(2)

Note that this doesn't include the dummy in the mean, only in the AR. You should be able to add the former with little trouble.
Last edited by EViews Glenn on Tue Dec 29, 2009 3:35 pm, edited 1 time in total.

startz
Non-normality and collinearity are NOT problems!
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Joined: Wed Sep 17, 2008 2:25 pm

Re: ARMA model with dummy variable

Postby startz » Tue Dec 29, 2009 3:24 pm

Two small things.

(1) If you really are doing AR(1), then the inverse root is just the reciprocal of the AR coefficient.
(2) Glenn dropped the observation at the breakpoint, which may or may not be what you want to do.

EViews Glenn
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Re: ARMA model with dummy variable

Postby EViews Glenn » Tue Dec 29, 2009 4:07 pm

Startz's comment on (2) is correct. I took the original poster's comment about handling the seam and dealt with it by dropping the observation, though that is not necessarily the best nor only way of handling it...


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