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I am reading the Rahbek and Mosconi (1998) paper on how to introduce exogenous variables in VEC models. I understand that, in addition to the introduction of the stationary exogenous variables, I should also include them in accumulated form in the cointegration space. Critical values for this can be found in Harbo et al. (1998).

I have two questions.

  1. How do I accumulate the variables? Is it correct to just add the stationary variables successively one after the other along the time series?
  2. Rahbek and Mosconi seem to argue that one has to use the restricted trend version for the asymptotics to hold. At the same time, Herbo et al. gives critical values for all models (trend specifications). If my variables are stationary without constant or trend, I should be able to use critical values stated for a restricted constant model, or? What should I do?
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