Hello all,
I would like to carry out a single-equation approach of the Error Correction Model such as
Delta_y(t) = a + b*y(t-1) + c*x1(t-1) + d*x2(t-1) + e*delta_x1(t) + f*delta_x2(t) + epsilon(t)
Where, a, b, c, d, e, f are coefficients to be estimated, y is the dependent variable, and x1, x2 are independent variables.
For the single equation approach of ECM, there is a requirement of the weak exogeneity. How could I carry out the test to see if there is weak exogeneity in the above system?
I read the book "Bernhard-Analysis of Integrated and Cointegrated Time Series" where in section 8.1.3 it uses alrtest() for the weak exogeneity test. But that is for the vector ECM, where y is of five components, where in my example, y is a scalar, only one component. What would be the best way for me to test the weak exogeneity for the above approach ECM?
http://books.google.com/books?id=ca5MkRbF3fYC
Thanks very much!
Cheers,
Rebecca
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