Hello everyone,

I'd like to include a dummy variable to simple system of equations (with cointegration):1) delta_y[t]=a0+a1*y[t-1]+a2*x[t-1]+u[t], 2) delta_x[t]=b0+b1*y[t-1]+b2*x[t-1]+e[t]. The dummy variable d[t]=[1,0,1,1,1,0,0,...1,1,0,1,0,1], so it somethimes equals 1, sometimes 0, and generally it increases the level of y[t] variable in some periods (when d[t]=1). While using vecm command should I add d[t] or rather delta_d[t] (which is differenced d[t])? My intuition is that delta_d[t] should be added to avoid some kind of trend. Dummy variable should be added as a xlist or rxlist (where dummy is in a cointegration space)?

Thanks in advance,

Best wishes,

Mariusz