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Hi everyone,

I was wondering if I could get any advice/comments on the following. I am looking to run a simple Phillips curve model from 1980 to 2010 using quarterly data. I have selected my dependent variable (which is obviously inflation) along with two independent variables of lagged inflation and the output gap. I have completed the necessary unit root test etc. I then ran the following in Eviews....

ls inflation c inflation(-1) output_gap

I was just wondering if this is the correct command for such a model. The results I returned with look pretty good, just want to ensure I have taken the correct approach.

Any feedback would be great,

Thanks,
Carlos

You should probably correct for serial correlation. There is also the question of whether either of the RHS variables are correlated with the error term.

Startz,

Thanks or your reply. I have corrected for serial correlation by adding lagged values to all variables. Is this sufficient?
Thanks

You should test for remaining serial correlation using the test under residual diagnostics.