Exogenous Features and Covariates

[bigfivecode]

Hi Chris,
Can you use use simple flags like 0/1 to indicate that an event has taken place as part of customizing the model with exogenous features?
Thanks

[cmp1]

Hi bigfivecode,

Would the flag be intended as a dummy variable i.e. to investigate structural change, or simply to indicate a post-intervention period?

[bigfivecode]

I would like to take into account that there was a shortage of stock(items in inventory) at some point in the pre-period and I was wondering if I could introduce a dummy variable for the dates when the shortage happened to reflect this event.
Or would you recommend a better solution?

Many thanks in advance

[cmp1]

You could certainly add this as a discrete variable to represent a binary Y/N shortage, however, the model would simply estimate it's effect as a point estimate i.e. it has no gauge of the relative level of inventory. IMHO, I think adding the inventory as a covariate in its continous form would be most effective. If you are simply trying to estimate the effect that an inventory shortage has on a dependent variable through time, then you might consider a structural time series as an alternative?

[bigfivecode]

Thanks for the clarification. It makes perfect sense.