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    Autoregressive Distributed Lag Model

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    Asia Butt
    The document discusses the autoregressive distributed lag (ARDL) model. It notes that ARDL models are commonly used to analyze long-run relationships between variables that are trend stationary. However, when variables are difference-stationary or integrated of order 1 (I(1)), the traditional ARDL approach is not applicable and alternative methods have been developed. The ARDL approach for analyzing I(1) variables involves: 1) testing for unit roots to determine cointegration ranks, 2) selecting optimal lag lengths, and 3) estimating the ARDL regression equation and conducting bounds testing to establish the long-run relationship.

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    Autoregressive Distributed Lag Model

    Uploaded by

    Asia Butt
    446 views2 pages
    The document discusses the autoregressive distributed lag (ARDL) model. It notes that ARDL models are commonly used to analyze long-run relationships between variables that are trend stationary. However, when variables are difference-stationary or integrated of order 1 (I(1)), the traditional ARDL approach is not applicable and alternative methods have been developed. The ARDL approach for analyzing I(1) variables involves: 1) testing for unit roots to determine cointegration ranks, 2) selecting optimal lag lengths, and 3) estimating the ARDL regression equation and conducting bounds testing to establish the long-run relationship.

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    The document discusses the autoregressive distributed lag (ARDL) model. It notes that ARDL models are commonly used to analyze long-run relationships between variables that are trend stationary. However, when variables are difference-stationary or integrated of order 1 (I(1)), the traditional ARDL approach is not applicable and alternative methods have been developed. The ARDL approach for analyzing I(1) variables involves: 1) testing for unit roots to determine cointegration ranks, 2) selecting optimal lag lengths, and 3) estimating the ARDL regression equation and conducting bounds testing to establish the long-run relationship.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    446 views2 pages

    Autoregressive Distributed Lag Model

    Uploaded by

    Asia Butt
    The document discusses the autoregressive distributed lag (ARDL) model. It notes that ARDL models are commonly used to analyze long-run relationships between variables that are trend stationary. However, when variables are difference-stationary or integrated of order 1 (I(1)), the traditional ARDL approach is not applicable and alternative methods have been developed. The ARDL approach for analyzing I(1) variables involves: 1) testing for unit roots to determine cointegration ranks, 2) selecting optimal lag lengths, and 3) estimating the ARDL regression equation and conducting bounds testing to establish the long-run relationship.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Autoregressive Distributed Lag Model (ARDL p, q model)

    Econometric analysis of long-run relations has been the focus of much theoretical and empirical
    research in economics. In the case where the variables in the long-run relation of interest are
    trend stationary, the general practice has been to de-trend the series and to model the de-trended
    series as stationary distributed lag or autoregressive distributed lag (ARDL) models. Estimation
    and inference concerning the long-run properties of the model are then carried out using standard
    asymptotic normal theory. The analysis becomes more complicated when the variables are
    dierence-stationary, or integrated of order 1 (I(1) for short). The recent literature on
    Cointegration is concerned with the analysis of the long run relations between I(1) variables, and
    its basic premise is, at least implicitly, that in the presence of I(1) variables the traditional ARDL
    approach is no longer applicable. Consequently, a large number of alternative estimation and
    hypothesis testing procedures have been specially developed for the analysis of I(1) variables.

    Steps:
    ARDL model have the following steps;

    Step 1;
    Apply unit root determine the order of Cointegration of the variables

    Step 2;
    Determine the appropriate lag length criteria for each variable. Level of lags is equal
    to 4 for each variable as EG we have one dependent variable in the model

    Step 3;
    To run the regression equation for those model having the short run and long run
    relationship,

    LMt= 0 + Lmt-1 + 2it-1 + 3 Lyt-1+ 4 Lpt-1 +


    2

    iit-i+
    i=0
    1)
    2)
    3)
    4)

    iLyt-i+
    i=0

    i=1

    i=0

    Lpt-i

    I =1.4
    I=0.P2(4)
    I=0.P3(4)
    I=0.P4(4)

    After estimating the equation apply Wald-Coefficient restriction 1=2=3=4=0

    LMt-1+

    Step 4;
    Apply F-test
    H0; 1=2=3=4=0 (No Cointegration)
    H1; 1=2=3=40 (Cointegration)
    1) If F-calculated is < F-Tabulated (if F-Calculated is below the lower critical value) then
    reject H1
    2) If F>F* (if F-Calculated is above the upper critical value) then reject H0
    3) If FL*< F < Fu* then inconclusive.

    Step 5;
    Normalize the long-run elasticities. Divide long-run elasticities with 1 then we have\
    =

    mt-1 + 2/1it-1 +3/1Lyt-1 + 4/1Lpt-1

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