Greetings
I have a time serie of inflation from 1970 to 2019, after visualising it I noticed the possibility of structural changes, and in did after testing for structural changes it suggested two structural changes one in 1990 and 1996.
My questions is how can I treat this time serie? taking into account that I'm using it as a explanatory variable.
I think it would be best if you find out what policy shift took place on those dates that impact your, variable. Then include them by incorporating dummy variable to measure the significance of their effect.
thank you Samson Adeniyi Aladejare I have tried this and the dummy variable was not significant
If they are not significant, it's likely the break dates are not significant enough to alter your findings. I will still suggest you run a chow test to further confirm the significance of the break dates. If the result still appears insignificant then I guess the breaks are not just significant after all.
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