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The autoregressive distributed lag bounds test generalised to consider a long-run levels relationship when all levels variables are 𝑰(𝟎)

Author

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  • Stewart, Chris

    (Kingston University London)

Abstract

Pesaran, Shin and Smith (2001) introduced the autoregressive distributed lag (ARDL) bounds cointegration testing procedure assuming the dependent variable is 𝐼(1) and allowing regressors to be 𝐼(1) or 𝐼(0). McNown et al (2018) and Sam et al (2019) propose a third test that avoids making incorrect inference if the dependent variable is not 𝐼(1) such that cointegration is only found when it exists. Because cointegration requires some variables to be 𝐼(1) an equilibrium with only 𝐼(0) variables is not considered. We argue that using new lower bound critical values the ARDL tests can determine whether an equilibrium exists when all levels variables can be 𝐼(0). This generalises the ARDL method to allow all levels variables to be 𝐼(1) or 𝐼(0).

Suggested Citation

  • Stewart, Chris, 2023. "The autoregressive distributed lag bounds test generalised to consider a long-run levels relationship when all levels variables are 𝑰(𝟎)," Economics Discussion Papers 2023-2, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2023_002
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    More about this item

    Keywords

    autoregressive distributed lag bounds test; 𝐼(0) variables; new lower bound critical values; law of one price;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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