Dummy variables in the simple dynamic model.

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Presentation transcript:

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: