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