I am using a model to identify impact of oil price on exchange rate. I am using VECM and 2 lags to run the model. I have been asked to re-write my equation in general form with complete lag structure and including the devaluation dummy into the model.
Need advise. The equation which I have now is attached for advise. Need assistance in re-writing this equation in a way I have been asked to do so.
The dummy variable can be included as exogeneous in the VECM. It is interesting to note that if you include dummy variables in the Johansen test, this will affect both the mean and the trend of the level series. To handle this problem, Johansen provides a simple procedure available in Johansen (1995) page 84. If the dummy can be treated as exogenous to my mind it is possible to use the original Johansen procedure. I think this is possible to use the R software with the vars package to implement VECM with dummy.
I hope their comments useful
Best regards
Thanks Anthony for your thoughts. What I am actually after is how can we can present this in an equation form. Attached word document states what I intend to get. Thanks
You may find a relevant topic at my paper attached; I used the vecm model to estimate the impact of oil price on some macroeconomic variables. I hope that can help you to specify your model.
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