Making dummy for non-linear parameter oil price

[Anne Stormoen]

Hi

I´m working with my master thesis where I use ARDL. It´s my first time in Stata, so I would appreciate any help I can get. I have a problem with one of the assumptions, linearity. Both oil price and real wage are non-linear. I tried to make log variables, but they are still not linear. I found an article by Hamilton about oil prices, where he propose a non-linear transformation (Net oil price increase). NOPI (i.e., the amount by which the log of oil prices in quarter t, pt, exceeds the maximum value over the previous 4 quarters; and 0 otherwise)

Does anyone know how I can make my variables linear? And the commands for this in Stata?

Thanks
Anne

[Carlo Lazzaro]

Anne:
welcome to the list.
There was a quite long thread on this about ARDL on this list: http://www.statalist.org/forums/foru...-ardl-in-stata
I do hope it can give you some guidance.
For the future (as recommended by and explained in the FAQ), please provide the list with the full reference of the article you mentioned. Thanks.