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This is my data frame containing some interest rates as well as the amount outstanding of open market operations. Now I want to regress EurOis3 on EurepOis3, Eurusd, Vstoxx, CDS and OMO with R. First I tested each time series for stationarity by computing the ADF test with the command ur.df. As it appears none of my time series is stationary. So in the literature I read in order to make them stationary one needs to compute the first difference (assumed they have a stochastic trend) of the time series and compute the regression with differenced variables rather than with level variables. So my question here is: am I doing this the right way if I use the following comand in R: lm(diff(EurOis3)~diff(EurepOis3)+diff(Eurusd)+diff(Vstoxx)+diff(CDS)+diff(OMO))? (the comand of the level regression would be: lm(EurOis3~EurepOis3+Eurusd+Vstoxx+CDS+OMO).

I am a little bit confused about the issue differencing. Somewhere I read you should substract $y_{t-1}$ from both sides of your model. Is the result the same as taking the first difference of each variable? Here is a small sample of my data:

Date    EurOis3 EurepOis3   Eurusd  Vstoxx  CDS OMO
    1   03.01.2005  0.065   0.001   2.1250  14.4700 17.938  345001.0
    2   04.01.2005  0.067   0.006   2.0000  14.5100 17.886  345001.0
    3   05.01.2005  0.064   -0.007  1.8750  14.4200 17.950  334001.0
    4   06.01.2005  0.065   -0.005  1.7500  13.8000 17.950  334001.0
    5   07.01.2005  0.060   -0.006  1.8750  13.5700 17.913  334001.0
    6   10.01.2005  0.059   -0.007  1.8750  12.9200 17.958  334001.0
    7   11.01.2005  0.057   -0.009  1.8750  13.6800 17.962  334001.0
    8   12.01.2005  0.060   -0.005  1.8750  14.0500 17.886  340001.0
    9   13.01.2005  0.060   -0.004  1.8750  13.6400 17.568  340001.0
    10  14.01.2005  0.059   -0.005  1.8750  13.5700 17.471  340001.0
    11  17.01.2005  0.058   -0.005  1.8750  13.2000 17.365  340001.0
    12  18.01.2005  0.059   -0.005  1.8750  13.1700 17.214  340001.0
    13  19.01.2005  0.057   -0.006  1.8750  13.6300 17.143  354501.0
    14  20.01.2005  0.057   -0.007  1.8750  14.1700 17.125  354501.0
    15  21.01.2005  0.056   -0.007  1.8750  13.9600 17.193  354501.0
    16  24.01.2005  0.057   -0.006  1.8750  14.1100 17.283  354501.0
    17  25.01.2005  0.058   -0.006  1.8750  13.6300 17.083  354501.0
    18  26.01.2005  0.057   -0.006  1.8750  13.3200 17.348  348001.0
    19  27.01.2005  0.059   -0.005  1.8750  12.4600 17.295  353001.0
    20  28.01.2005  0.060   -0.004  1.8750  12.8100 17.219  353001.0
    21  31.01.2005  0.058   -0.004  1.8750  12.7200 17.143  353001.0
    22  01.02.2005  0.059   -0.003  1.8750  12.3600 17.125  353001.0
    23  02.02.2005  0.058   -0.003  1.8750  12.2500 17.000  357501.0
    24  03.02.2005  0.056   -0.008  1.7500  12.3800 16.808  357501.0
    25  04.02.2005  0.058   -0.004  1.7500  11.6000 16.817  357501.0
    26  07.02.2005  0.058   -0.004  1.7500  11.9900 16.798  357501.0
    27  08.02.2005  0.058   -0.003  1.5000  11.9200 16.804  355501.0
    28  09.02.2005  0.062   0.000   1.5000  12.1900 16.589  355501.0
    29  10.02.2005  0.060   0.000   1.5000  12.0400 16.500  355501.0
    30  11.02.2005  0.062   0.002   1.5000  11.9900 16.429  355501.0
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    $\begingroup$ Here is another post by the same author asking partly the same questions. Michael B: in the future, it could be a good idea to keep such related questions in one post or at least add a link from one question to the other. $\endgroup$ – Richard Hardy Apr 1 '15 at 21:39
  • $\begingroup$ Regarding am I doing this the right way if I use the following comand in R: yes, you are doing it right. Regarding Is the result the same as taking the first difference of each variable?, check out my comments on this post. $\endgroup$ – Richard Hardy Apr 1 '15 at 21:41
  • $\begingroup$ Many thanks for your reply on this and the other post. I first posted my question on the stack overflow forum. Then I realized my question better fits to this forum. So I thought i deleted my question from the other forum. But it appears it didnt work.. thanks again and sorry for double posting $\endgroup$ – Michael B Apr 5 '15 at 15:07

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