[Gretl-users] A Newbie Needs Help

[Scott David Orr]

OK, I've looked over the command help for "arbond", and I think I 
understand the basics, and this should do the trick.  I do have a 
couple of questions:

The help suggests that most indepedent variables should be 
differenced, presumably because the D.V. is differenced by the A-B 
method.  It says that though in certain cases, such as time dummies, 
you night want want differenced variables.  What would you recommend 
doing with other sorts of dummies?  Two I have in mind are dummies to 
represent intermittent exogenous events, specifically elections and 
natural disaster (droughts and floods).  I assume they should be differenced?

Also, this paragraph has me a little confused:

"By default the results of 1-step estimation are reported (with 
robust standard errors). You may select 2-step estimation as an 
option. In both cases tests for autocorrelation of orders 1 and 2 are 
provided, as well as the Sargan overidentification test and a Wald 
test for the joint significance of the regressors. Note that in this 
differenced model first-order autocorrelation is not a threat to the 
validity of the model, but second-order autocorrelation violates the 
maintained statistical assumptions."

Which statistical assumptions does second-order autocorrelation 
violate?  Those of either procedure, or just the two-steps?  And what 
to do if estimation reveals significant second-order or higher 
autocorrelations?  By the way, is there any reason I'd want to use 
1-step rather than 2-step?

Scott