Dear all,
I have 2 variables x and y. y is the dependent variable.
I found that they are cointegrated. So I need to define the Error correction model (ECM).
So I run the simples ECM
reg d.y l.resid_1 d.x
But I find that the residuals from this regression are correlated. How can I eliminate serial residual correlation? I know that I have to add lags of d.y and d.x to the ECM, but is there any stata procedure that that allows me to end up with a final augmented ECM?
Best,
John
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