Dear all

I have a basic question. In time series analysis, I have a (level) variable that is nonstationary. I am interested in estimating shocks to this level variable, and then use these shocks in another time series regression. I try to make is simple here:

I have done the following:

newey x L.x, lag(4)

predict shock, res

When I test the stationarity of the residuals, I find they are stationary. I then use these shocks in another regression:

newey f.gdp shock, lag(4)

My question is that:

Does it make sense to use these residuals as shocks to x even if x is nonstationary (knowing that the residuals are stationary) ?

Thanks

I have a basic question. In time series analysis, I have a (level) variable that is nonstationary. I am interested in estimating shocks to this level variable, and then use these shocks in another time series regression. I try to make is simple here:

I have done the following:

newey x L.x, lag(4)

predict shock, res

When I test the stationarity of the residuals, I find they are stationary. I then use these shocks in another regression:

newey f.gdp shock, lag(4)

My question is that:

Does it make sense to use these residuals as shocks to x even if x is nonstationary (knowing that the residuals are stationary) ?

Thanks

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