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Dummy variables in the simple dynamic model
| Date post: | 20-Dec-2015 |
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Dummy variables in the simple dynamic model
Dummy variables and the VAR
The simplified model can be written as:
The expected value of the process and the cointegration relations becomes:
The dynamic properties of the data can now be expressed as:
where
It is easy to see that:
Illustration
Are the observed outliers additive or innovational?
An additive outlier in real money stock
The Danish VAR model with dummy variables
The unrestricted VAR with dummies
We need to distinguish between:
