Cross Validated Asked by Kiril E. Proykov on January 25, 2021
I wanted to do a sanity check.
I want to remove the effect of structural breaks on my series.
Therefore, I create a dummy with 1s for the period of structural change and 0s for the rest. (There might be several periods). Let’s call it D
I then regress it on yt = b0 + b1D + ytStar, where ytStar is the series with no structural break effect.
Do you see any issues with that?
I do see possible flaws with your suggested approach as my answer is that you should consider using ARMAX model which can incorporate X's and their lags , ARIMA and pulses, level shifts,seasonal pulses and time trends.
Answered by IrishStat on January 25, 2021
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