Tax + Price interaction in a VECM-based model

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Tax + Price interaction in a VECM-based model

Postby stoddj » Sat Feb 13, 2021 3:50 pm

I have a VECM-based stochastic Model that works pretty well in EViews 12 forecasting the effects of taxes on energy prices if I just
1) add a tax to the historic price series, and then
2) treat the new price + tax series as exogenous in the Model for the forecast period.

But what I would like to do is to specify the tax as exogenous but leave the energy prices endogenous. So the resulting price + tax variables would be endogenous.

I can't see how to do this in the VECM and Model framework. I've tried to specify the tax as zero up until the forecast period and then making the tax exogenous for the forecast scenario. I can just type in coal_price+coal_tax for the VECM variable, and that works fine, since the tax is actually zero. But when I try to run the simulations with positive taxes the model gives me back an error message like "coal_tax_1 is undefined."

I'm sure I'm missing something very basic, but can't seem to find examples that help. Thanks, JS

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