use phillips_curve

log using phillips_curve.log, replace

* there are three variables in the data set
* year 
* unemp (annual unemployment rate in %)
* inflation (annual inflation rate in %)


* The order of the time series
* data must be specified by an
* index.  Here, we use year as the
* index
tsset year

* run classical phillips curve

reg inflation unemp

* get durbin watson statistic
estat dwatson

* output residual
predict resid_a, residual

* lag the variable 1 period
gen resid_a1=resid_a[_n-1]

* estimate ar(1) term
reg resid_a resid_a1, noconst


*now estimate augmented Phillips Curve
* construct difference in inflation
gen inflation_1=inflation[_n-1]
gen d_inf=inflation-inflation_1

reg d_inf unemp
estat dwatson

prais d_inf unemp, corc twostep


log close