Exogenous or I(0) variables in VECM

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adfung
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Joined: Thu Feb 25, 2010 7:28 pm

Exogenous or I(0) variables in VECM

Postby adfung » Sat Mar 06, 2010 6:56 pm

Hi,

I read in Asteriou's "Applied Econometrics" page 327 that in doing a VECM "...there is another box that allows us to include (by typing their names) variables that will be treated as exogenous. Here we usually put variables that are either found to be I(0) or dummy variables that possibly affect the behaviour of the model."

I have around 8 or so variables f interest that I believe should be in my model. ADF and PP tests show that around 5 of them are I(1), the other 3 are I(0). Am I right in proceeding to put the I(0) variables in the "Exogenous variables" box?

cheers

andrew

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