[R-SIG-Finance] error correction model - general specification

[Gautier RENAULT]

Hi R-users,

I try to deal with cointegration in R and estimate an Error Correction Model
(ECM) in a bivariate case in which I consider two variables:

·         Pt: index house prices in France from 1996:Q1 to 2009:Q3 (log
dependent variable)

·         Xt: amount that households can borrow (log explanatory variable).
Xt captures the role of credit, income and interest rate as drivers of the
french housing demand.

Data are in “fr-demand-house.csv”.

The final aim is to estimate the long run relationship between houses prices
(Pt) and the credit (Xt) in France :

Pt = α + ϕ Xt

I wish to estimate a general specification of the ECM as follows :

ΔPt=λ(Pt-1-α - ϕ Xt-1)+Σ(ΔXt-i)+Σ(ΔPt-i)



First, following the methodology presented in the book of B. Pfaff I bought,
I already concluded that Pt and Xt are cointegrated  I(1) with ur.df (ADF
test ) and ca.po (Phillips-Ouliaris Method) functions.

Second, how can I do :

1.       to choose optimal number of lag in this general specification for
the two cointegrated variables Pt (ΔPt-i) and Xt (ΔXt-i)?

2.       to add a dummy variable for the first quarter of 2009 (dumQ1-2009)
to test the collapse of houses prices in France at the beginning of 2009 ?

Can anyone help?

thanking you in advance,



Gautier RENAULT
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