* Cointegration in Consumption and Output
*
* Keywords:
*     cointegration, stochastic, volatility, ml, consumption, output, graph
*
* Description:
*     We model the Stochastic Volatility in Deutschmark/Pound Exchange Rate
*     with a GARCH(1,1) model
*
* Author(s):
*     Noel Roy
*     Skif Pankov
*
* Source:
*    William H. Greene, Econometric Analysis - 7th Edition
*    Pearson International Edition, Chapter 21, Example 21.5 (page 1000)
*

time 1950 4
sample 1950.1 2000.4 

* Reading the data and naming variables, specifying to ignore the first 
* line
read (TableF5-2.shd) year qtr y c / skiplines=1

* Generating logs of data
genr c=log(c)
genr y=log(y)

* Replicating Figure 21.10
sample 1950.1 2000.4
genr quarter=year+qtr/4
graph c y quarter / lineonly 

* Estimating the error correction model by non-linear least squares
sample 1950.2 2000.4
genr lc1=lag(c)
genr ly1=lag(y)
nl 1 /ncoef=4 coef=b
eq c=lc1+mu+beta0*(y-ly1)+(gamma1-1)*(lc1-theta*ly1)
end

* Running an OLS model and testing coefficients
ols c lc1 y ly1
test -(y+ly1)/(lc1-1)

* Replicating Figure 21.11
genr eqerror=(b(3)-1)*(lc1-b(4)*ly1)
graph eqerror quarter  / lineonly nokey 

stop