Re: [Gretl-users] A Newbie Needs Help

OK, I've looked over the command help for "arbond", and I think I understand the basics, and this should do the trick. I do have a couple of questions: The help suggests that most indepedent variables should be differenced, presumably because the D.V. is differenced by the A-B method. It says that though in certain cases, such as time dummies, you night want want differenced variables. What would you recommend doing with other sorts of dummies? Two I have in mind are dummies to represent intermittent exogenous events, specifically elections and natural disaster (droughts and floods). I assume they should be differenced? Also, this paragraph has me a little confused: "By default the results of 1-step estimation are reported (with robust standard errors). You may select 2-step estimation as an option. In both cases tests for autocorrelation of orders 1 and 2 are provided, as well as the Sargan overidentification test and a Wald test for the joint significance of the regressors. Note that in this differenced model first-order autocorrelation is not a threat to the validity of the model, but second-order autocorrelation violates the maintained statistical assumptions." Which statistical assumptions does second-order autocorrelation violate? Those of either procedure, or just the two-steps? And what to do if estimation reveals significant second-order or higher autocorrelations? By the way, is there any reason I'd want to use 1-step rather than 2-step? Scott