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Dave Giles
My previous posts relating to ARDL models (here and here) have drawn a lot of hits. So, it's great to see that EViews
9 (now in Beta release - see the details here) incorporates an ARDL modelling option, together with the associated L'Amable, ON, Canada
"bounds testing". I'm now retired as
Professor Emeritus from
This is a great feature, and I just know that it's going to be a "winner" for EViews. the University of Victoria, Canada. I
still research in Econometrics &
applied Statistics.
It certainly deserves a post, so here goes!
View my complete profile
First, it's important to note that although there was previously an EViews "add-in" for ARDL models (see here and here),
this was quite limited in its capabilities. What's now available is a full-blown ARDL estimation option, together with Search This Blog
bounds testing and an analysis of the long-run relationship between the variables being modelled.
Search
Here, I'll take you through another example of ARDL modelling - this one involves the relationship between the retail
price of gasoline, and the price of crude oil. More specifically, the crude oil price is for Canadian Par at Edmonton; and Total Pageviews
the gasoline price is that for the Canadian city of Vancouver. Although crude oil prices are recorded daily, the gasoline
prices are available only weekly. So, the price data that we'll use are weekly (end-of-week), for the 4 January 2000 to 16
July 2013, inclusive.
4,660,347
The oil prices are measured in Candian dollars per cubic meter. The gasoline prices are in Canadian cents per litre, and
they exclude taxes. Here's a plot of the raw data:
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The data are available on the data page for this blog. The EViews workfile is on the code page.
I'm going to work with the logarithms of the data: LOG_CRUDE and LOG_GAS. There's still a clear structural break in the
data for both of these series. Specifically there's a structural break that occurs over the weeks ended 8 July 2008 to 30
December 2008 inclusive. I've constructed a dummy variable, BREAK, that takes the value one for these observations, and
zero everywhere else.
The break doesn't occur at just a single point in time. Instead, there's a change in the level and trend of the data that
evolves over several periods. We call this an "innovational outlier", and in testing the two time series for unit roots, I've
taken this into account.
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In a recent post I discussed the new "Breakpoint Unit Root Test" options that are available in EViews 9. They're perfectly
suited for our current situation. Here's how I've implemented the appropriate test of a unit root in the case of the
LOG_CRUDE series:
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We wouldn't reject the hypothesis of a unit root at the 5% significance level, and the result is marginal at the 10% level. The Erdos Number Project
The corresponding result for the LOG_GAS series is: My Erdos Number is 4
ARDL Modelling in
EViews 9
In this case we'd reject the null hypothesis of a unit root at the 5% significance level, but not at the 1% level. Overall, the
results are somewhat inconclusive, and this is precisely the situation that ARDL modelling and bounds testing is designed Blog Archive
for. Applying the unit root tests to the first-differences of each series leads to a very clear rejection of the hypothesis
► 2017 (34)
that the data are I(2), which is important for the legitimate application of the bounds test below.
► 2016 (55)
Now, let's go ahead with the specification and estimation of a basic ARDL model that explains the retail price of gasoline ▼ 2015 (87)
in terms of past values of that price, as well as the current and past values of the price of crude oil. We can do this in the ► December (9)
same way that we'd estimate any equation in EViews, but we select the "Estimation Method" to be "ARDL" (see below):
► November (1)
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► September (5)
► August (9)
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► March (7) 9 min to Spreed
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► February (9)
▼ January (5)
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ARDL Modelling in EViews 9
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means that 72 different model specifications will be considered, allowing for the fact that the current value of models Asymptotic theory
LOG_CRUDE can be considered as a regressor. Also, notice that I've included the BREAK dummy variable, as well as an Autocorrelation Bayesian
intercept and linear trend as (fixed) regressors. (That is, they won't be lagged.) inference Bias correction Big data
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Using the OPTIONS tab, let's select the Schwarz criterion (SC) as the basis for determining the lag orders for the
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The model which minimizes SC will be chosen. This results in a rather parsimonious model specification, as you can see: students Granger causality
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I mentioned in an earlier post on Information Criteria that SC tends to select a simpler model specification than some Sports STATA Statistics Statistics
other information criteria. So, instead of SC, I'm going to use Akaike's Information Criterion (AIC) for selecting the lag Canada Statistics NZ Structural breaks
SURE model Survey data survival
structure in the ARDL model. There's a risk of "over-fitting" the model, but I definitely don't want to under-fit it. Here's
what we get: analysis teaching Teaching
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It's important that the errors of this model are serially independent - if not, the parameter estimates won't be consistent Stochastic Trend
(because of the lagged values of the dependent variable that appear as regressors in the model. To that end, we can use
the VIEW tab to choose, RESIDUAL DIAGNOSTICS; CORRELOGRAM - Q-STATISTICS, and this gives us the following results: EViews
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The p-values are only approximate, but they strongly suggest that there is no evidence of autocorrelation in the model's
residuals. This is good news!
Now, recall that, in total, 72 ARDL model specifications were considered. Although an ARDL(4,2) was finally selected, we
can also see how well some other specifications performed in terms of minimizing AIC. Selecting the VIEW tab in the
regression output, and then choosing MODEL SELECTION SUMMARY; CRITERIA GRAPH from the drop-down, we see the "Top
Twenty" results:
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IP +0.2 % Chg.
on Jul 2017
(You can get the full summary of the AIC, SC, Hannan-Quinn, and adjusted R2 statistics for all 72 model specifications if Payroll Employment
+209 Chg., Thous. of
you select CRITERIA TABLE, rather than CRITERIA GRAPH.)
Persons on Jul 2017
One of the main purposes of estimating an ARDL model is to use it as the basis for applying the "Bounds Test". This test is
discussed in detail in one of my earlier posts. The null hypothesis is that there is no long-run relationship between the
... and 498,000+ more
variables - in this case, LOG_CRUDE and LOG_GAS.
series in FRED
In the estimation results, if we select the VIEW tab, and then from the drop-down menu choose COEFFICIENT
DIAGNOSTICS; BOUNDS TEST, this is what we'll get:
We see that the F-statistic for the Bounds Test is 32.38, and this clearly exceeds even the 1% critical value for the upper
bound. Accordingly, we strongly reject the hypothesis of "No Long-Run Relationship".
The output at this point also shows the modified ARDL model that was used to obtain this result. The form that this
model takes will be familiar if you've read my earlier post on bounds testing.
In the estimation results for our chosen ARDL model, if we select the VIEW tab, and then from the drop-down menu
choose COEFFICIENT DIAGNOSTICS; COINTEGRATION AND LONG RUN FORM, this is what we'll see:
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The error-correction coefficient is negative (-0.2028), as required, and is very significant. Importantly, the long-run
coefficients from the cointegrating equation are reported, with their standard errors, t-statistics, and p-values:
First, not surprisingly, there's a long-run equilibrium relationship between the price of crude oil, and the retail price of
gasoline.
Second, there is a relatively quick adjustment in the price of gasoline when the price of crude oil changes. (Recall that
the data are observed weekly.)
Third, a 10% change in the price of crude oil will result in a long-run change of 7% in the price of retail gasoline.
Whether or not these responses are symmetric with respect to price increases and price decreases is the subject of some
on-going work of mine.
Labels: ARDL Models, Cointegration, Information theory, Structural breaks, Time series, unit roots
205 comments:
As usual fantastic! The more detailed instructions, the better for this amateur. I enjoy trying to duplicate your steps.
Sometimes the code is too complicated however. Thank you. It is very enjoyable to see economic issues of the day analyzed,
along with explanations that help one to learn how to replicate the processes. Right now the price of Brent related to world
excess supply or deficit supply compared to world demand seems confusing. There seems to be no relationship. Any chance
of a post on the relationship of Brent price to the excess or deficit supply When I figure-out how to select a profile other
than anonymous.
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Sir, Can we apply ARDL bound testing to analyze two co-integration relations between the same variables (x and y). e.g. X c
Y and Y c X.
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Thank you very much for this wonderful blog Prof. Giles! I have questions concerning ARDL(p,q) bounds-testing.
Assume I have X-variable(s) which cannot have a unit-root; for instance a dummy-variable for certain events (like
macroeconomic shocks) and its lagged values. Can I include this (these) variable(s) in the "ARDL bounds-testing approach"?
Such a dummy-variable, name it SHOCK, would be rather similar to your “BREAK” variable, I guess. The coefficient on
D_SHOCK would then pinpoint the short-run effect of the shock and the coefficient on SHOCK would represent the long-run
impact of the macroeconomic shock (although SHOCK is I(0) and cannot be cointegrated with Y)? The bounds-test for
cointegration would be an F-test on joint significance of the lagged Y and lagged X variables (not including SHOCK)?
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That's correct.
Dear Prof. Dave, I have a model with one dummy variable (crisis). This dummy is set from 1997-1999 for crisis (1)
and other years (0) for non-crisis. Then, when I run breakpoint unit root test in level, I got different break date
for different variables. But when I run it in 1st difference, I got the same break date (1997) for different
variables, all variables stationary in 1st difference. So, can I still put this dummy variable using 1997-1999 in the
model? or only 1997 ? The problem is, if I put only 1997 as crisis year, the dummy has insignificant coefficient.
Thank you
Dear Prof.,
Referring to the last sentence of the January 18, 2015 question, that says 'The bounds-test for cointegration
would be an F-test on joint significance of the lagged Y and lagged X variables (not including SHOCK)?', how can
we do it in EViews?
Thank you
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Question - when I downloaded and plotted the data for gas and oil in a scatter, they appeared to have a linear relationship.
In some work I'm doing, the variables seem to have an exponential relationship. Something like y = x1 + x1^2 + x2 seems to
fit the data much better than y = x1 + x2. Would an ALDR still work in this case? Would I want to include lags of of the x1^2?
Would it enter the model a "Fixed Regressor" like "BREAK" in your example?
Unfortunately, I am stuck with Eviews 8 for now. The lag selection tools are making me green with envy.
Thanks sir!
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Yes, that's correct on all counts. If you have a legitimate version of EViews 8.1 on your machine, you can
download the Beta version of EViews 9 for free from here: http://register1.eviews.com/beta/
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please sir, can you give an example on how to go through the nonlinear ARDL model
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plz sir clear my confusion about F test... can we use Pesaran et al. table for small sample size or will go for Naryan table? plz
answer me as soon as possible
thnx
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Naryan table.
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Dear Dave
Thank you ofr all these explanations. Howver, I would to ask you please how we can do short and long run multipliers
graphics with Eviews.
Sincerely
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Can I get eview 9 demo since Apr.19? I have submitted form but I didn't find any email reply.
Did you know how to get it?
Thank you very much!
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Dear Prof.,
Regarding to "Breakpoint Unit Root Test" compare with "Unit Root Test", is there any benefit or improvement?
Thank you!
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If you have structural breaks you should not use the usual unit root tests (e.g., ADF) without modification.
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Hello Sir.I run ARDL bound test method and find cointegration bw variables. Than I employ short-run and long-run analysis. In
the short-run, I found min. in akaike in X(0to-1) =-4,54 rather than X(0to-5) =-4,53. But, there is a normality(JB) problem in
the first one. May I choose 0to-5 or ignore the normality problem in the first one. Moreover, I have heteroskedasticity
problem in my estimations both bound test, short-run and ECM granger causality tests. Is it a signiicant problem for time
series. Thx for interest and help.
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appreciation prof.
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Thanks for this post, it's really illuminating. However, I would like to know how we can do a causality test in the ARDL
framework. Specifically, if Bounds test shows that X and Y are cointegrated, then (we recall from your earlier post that when
variables are cointegrated, there would be at least a unidirectional causality between them) how can we do the Granger
causality test in Eviews 9?
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I have a model which is not linear...y=c(1)+c(2)*(x^2)+c(3)*(z^2). Can I apply the ARDL method for cointegration in this model
? If yes, how can I transfrom this model in a ARDL model ?
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Your model is, in fact, linear - linear in the parameters, and that's all that matters. Just re-label X1=X^2, and
X2=Z^2, and then proceed in the usual way.
One more question...What about this model? y=c(1)+c(2)*x*w+c(3)*(z^2) ? Do I re-label x*w as, lets say q, and
proceed in the usual way?
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Can I cointegrate a Cobb Douglas function with an ARDL(or with any other method for cointegration), without using its
logarithmic form?
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No, certainly not exactly. If |x| < 1 you could use the Taylor series approximation for log(1+x), namely, log(1+x) =
x - (x^2)/2 + .......... and go from there.
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Dear Sir,
My data seems to have several structural breaks...do I need to correct for those using Bai-Perron...can this be done in eviews
9
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Dear Sir
Thanks for the reply regarding Bai-Perron test...however I could not find it in eviews9.. 9 min to Spreed
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2. I am dealing with interest rate date, on quarterly basis since 1996q1, which is showing immense oscillations over the
entire period and is following no set pattern...should this be taken as structural breaks or can be adjusted by only taking
time.
3. When I attempted doing without any dummy variables in microfit, it does not pass the CUSUMQ test and suggests to
incorporate a dummy variable for cr.
4. For optimal no. of lags in ardl, can we get them from eviews9 via the automatic lag selection criteria and then carry the
work in microfit. Similarly suggest the same for the structural break.
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Keep up the good work Dave! I just ran the ARDL model using monthly data and obtained results, BUT, my model exhibits
serial correlation past the 11th lag. The Q-stats from lag 0-11 are not serially correlated but past that, (12 to lag 36) are
serially correlated. I have (1) included dummies (2) ran the top 8 models as selected by AIC (3) even tried using logs..
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Please see my reply to "Anonymous" immediately below. Given what you've tried already, I'd suspect omitted
regressors.
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Thanks for the post Dave. I'm running the same type of model (ARDL) using monthly data but I cannot seem to get rid of
serial correlation appearing after the 11th lag in the Q-stats despite trying different specifications.
Any thoughts?
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It could be the functional form - logs or levels? The other thing that comes to mind is a mis-specification through
the omission of one or more regressors. Are the data seasonally adjusted, or have you included seasonal dummy
variables? If the latter, explore if they should be simply additive, or if they should interact with one or more of
the regressors. Bottom line - remaining autocorrelation is probably a result of model mis-specification.
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Thanks! I'm looking at the relationship between unemployment and oil prices using both logs and levels. I have also used
these dummies as regressors: @EXPAND(@MONTH, @DROPFIRST)
Still getting Serial correlation after the 11th lag.
What do you think?
This is fun but it can get old :)
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Thanks Dave.
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Anonymous June 10, 2015 at 10:36 PM
Dear Prof,
In ARDL model Is there a way to get impulse response functions from error correction model (not from VECM) with eviews 9
or manually by excel?
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I am so glad to see your power posts. My questions are that after running ARDL cointegration test for a multivariate time
series, which method should i use for causality test? is it possible to use ecm-ARDL results to determine causality between
variables?
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My preference would be to use a VAR model and the MWALD (Toda-Yamamoto test). I have sevseral posts about
this that may help.
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Dear Prof,
How to check stability diagnostics in ARDL eviews9? I am talking about CUSUM and CUSUM SQUARE
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One suggestion: save the residuals from the ARDL. Then regress these residuals just on a constant using OLS and
go from there.
Try this, from the estimated model window, choose View-->stability diagnostic--> recursive estimation
These tests have nothing to do with ARDL modelling and Bounds Testing, per se. With any estimated model you
may be concerned about the model's stability - hence the use of such tests.
Dear Prof. Dave, i tried the trick (One suggestion: save the residuals from the ARDL. Then regress these residuals
just on a constant using OLS and go from there.). When i regressed resid on c, i find c is insignificant and R_sqr is
zero. What to do?
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Dear Prof,
I have used two softwares Eviews9 and Microfit4.1 for doing bounds test for my trivariate model but in some cases the
results were not the same. Which one is reliable? for my sample (1960-2012 yearly) how many lags should i define as max
lags number?
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You should address the first question to the suppliers of those packages. With your annual sample, I'd try, maybe,
12 years as a maximum and use SIC to determine the preferred lag length. The latter will undoubtedly be much
smaller than 12.
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for ARDL cointegration test and having a sample of less than 50 observations (yearly data), which kind of Heteroskedastisity i
should use and how many lags i should determine for doing that test?
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I doubt if het. is an issue with your time-series data, but you could White's test as it applies to a very general
class of types of het. Use SIC to determine the lag length.
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Sir, you are doing great work. Can you tell me how i can run ARDL approach by using E-views 7.? because through estimation
it does not provide ARDL method in Method section. so how i can apply ARDL in E-views 7.
thank you. i really appreciate your efforts.
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All you need is OLS. There is also an EViews "add-in" for ARDL modeling that will run in EViews 7. See this post:
http://davegiles.blogspot.ca/2014/01/an-ardl-add-in-for-eviews.html
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Dear Profesor
After running ARDL bounds tests, Ramsey rest test null hypothesis is not rejected. firstly i do not know how determine
number of fitted values for this test secondly by not rejection of this test what should i do?
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The number of fitted values is somewhat ad hoc. You can't use just one - usually people use 2, 3, or 4.
The Ramsey test is testing if the coefficients of these extra variables are zero, You want them to be. That is, you
do not want to reject the null hypothesis. A rejection is signalling mis-specification of the model, either in terms
of functional form, or perhaps omitted regressors.
Also, please see http://davegiles.blogspot.ca/2015/06/readers-forum-page.html
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Dear Sir,
I was wondering if you could have an idea of how to find lag lengths using Gretl package.
Thanks!
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Dear Prof,
I was asking how to determine optimal p&q while using Gretl package and if possible how to do bounds test.
Pascal - try combinations of p and q and minimize SIC. To do the bounds test, all you need is access to OLS - see
my earlier post on this in this blog.
9 min to Spreed
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Sir your example uses two variables. I wanted to ask that can we replicate the same example using multiple variables. Plus
how can we find the causality taking the variables in pairs. . Also please letme know is it necessary to take the value in log
for the model? Thanks
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Sidra - yes, you can do the same thing with three or more variables. The causality testing should be done
separately in the context of a VAR model. You don't have to take logarithms of the data.
Sir can ARDL model be used of all the variables are I(1) and none is I(0) or I(2) ?
Yes.
I have replicated the above example with multiple variables. It is found to have a long run relationship ,but one
of my long run coefficients is showing the value 0 (although t statistic is significant) what does this mean and how
to interpret it .
The equation is
Cointeq = LOG(REAL_PER_CAPITA_INCOME) - (0.0008
*ELEC_PER_CAPITA + 0.0000*TOTAL_LABOUR_FORCE + 1.1345
*GFCF__OF_GDP + 9.6866 )
The dependent variable is taken in log and the others in level.
Many thanks
Looks to me like a scale issue. The value is zero to 4 decimal places, but it's not really zero. Try re-running
everything after dividing your TOTAL_LABOUR_FORCE series by (say) 10,000. All this will do is scale (multiply) the
estimated coefficient by 10,000. The you'll probably see an effect. No interpretations or other will be affected by
doing this, and the t-statistic will be identical to what it is now.
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hello , i have dependant var I(0) , 6 independant var are I(1) , 1 independant var is I(0) and one I(2) ,, im confused between
VAR and ARDL model , which one is the appropriate?
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VAR, using Toda-Yamamoto method - see my earlier posts. As I state in this post, you can't use ARDL if you have
I(2) data.
Also, see http://davegiles.blogspot.ca/2015/06/readers-forum-page.html
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Dear Professor
According to one paper i found Long-run parameters and standard errors estimaed by ARDL method are biased specially in
small sample data. That paper suggested using bias-corrected bootstrap method instead of delta method. Now my question
is that how is it possible to do this in eviews 9.0?
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Are the bounds F- and t-tests for level relationships still valid in a conditional unrestricted ECM with a linear *and* quadratic
trend? And in a more general ARDL?
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The tables of critical values given by Pesaran et al. allow for various intercept-linear trend combinations, but
they won;t be valid of you have a quadratic trend in the model. If by a "more general ARDL" model you mean one
with more than two variables, then yes. The parameter, k, in the Pesaran et al. tables is for the number of "x"
variables in the model.
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I have a question. How do I make the Granger causality test? because I have seen it in the papers mentioned always
performed test. Another question. Is it necessary to analyze the causality in the short and long term?
Regards
Andres
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http://davegiles.blogspot.ca/2011/04/testing-for-granger-causality.html
http://davegiles.blogspot.ca/2011/10/var-or-vecm-when-testing-for-granger.html
http://davegiles.blogspot.ca/2012/04/surplus-lag-granger-causality-testing.html
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HELLO,
Thanks for the great post. However i have a question, is it okay to include a dummy variable to capture a break the data for
a long period of time say (20002Q1-2010Q4,if you have justification of an event that is likely to cause such break in the
series) 2) when using a VAR (from your ARDL 2 POST) to obtain the lag of the dependent variable, are we to specify the
dummy variable as an exogenous variable(in difference and in lagged level) as well? 3) what if i find no cointegration are
there any conventional model to test the short run effect as Granger causality test only tells the direction of causality?
lastly,(not related to this post) please do you have a post on stochatic simulation method of forecasting or any forecasting
related post?i l really look forward to your reply. Thanks very many.
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That would be fine if you're really sure that there is just the one break. Keep in mind that the dummy variable is
simply shifting the intercept in the model, so this give you the answer to your second question - you would treat
the dummy variable in exactly the same way that treat the intercept. So, you would not be differencing/lagging
it. If there is no cointegration, then a simple ARDL model (not the sort used for bounds testing) would provide a
useful basis for examining short-run effects. For instance, see http://davegiles.blogspot.ca/2013/03/ardl-
models-part-i.html . Finally, I don't have any posts on stochastic simulation - why not leave me a request on the
"Readers' Forum" page and I'll see what I can do. If you use the "Search" on the blog page (right sidebar) you'll find
a handful of posts on forecasting.
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hi dave,
asthis is the most recent post you get to reply, i have question concerning T-Y granger causality test in your previous post.
Does the AR graph really matter? because when i estimated a VAR(4) model selected by the information criteria, there was
no problem of Auto correlation but however the on AR graph,few of the points where outside the circle. when i estimated a
var(3) all the points where inside but there was a problem on auto correlation...please what do you think is wrong?
thanks...~valerie 9 min to Spreed
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There are 2 quite different things going on here, One is testing for autocorrelation in the residuals of the model.
The other is checking to see if the estimated coefficients of the VAR model imply a dynamically stable
autoregressive structure. Unless the inverse roots of the characteristic equation associated with VAR lag structure
are all inside the unit circle, the model is dynamically unstable - a shock to the model will just grow and grow.
You wouldn't want to use a model with that feature.
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thank you.two final questions please. are there any scenario where the specified lag length chosen by the information
criteria, does not still remove the problem of autocorrelation?if there is, are we allowed to increase the lag length
ourselves? secondly, if the lag length chosen is e.g 7 and which solves the AC problem in the residuals + the AR
condition,then estimating the var(7) in which case we include one extra lag (p+m, variables are all I(1)) when specifying the
exogenous do we still have to check the AC and AR graph of the new specified model? just wondering. thanks ~ Valerie
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Valerie: Yes, this often happens, perhaps not surprisingly because the IC are looking at the "fit" of the model (with
a penalty for complexity), whereas autocorrelation may be arising because of incorrect functional form, etc. If
this occurs, you often need to increase the max. lag length that's suggested by the IC. That's OK. The main thing
is to be happy with the specification of the "base" model. It sounds as if you are referring to the TY procedure
where you then add lags of the variables (but don't include these extra lags in the null hypothesis) when testing
for Granger non-causality. Adding them is just a "trick" to ensure that the test statistic you're using has the usual
asymptotic distribution. That being so, you don;t have to be so concerned about the AC etc. in the "final" model
on which the testing is based.
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Dear Professor,
Is it not necessary to check that the underlying variables are not I(2) when structural breaks are present?
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The ARDL bounds testing requires that no variables be I(2), whether or not there are breaks.
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Dear Prof.
If I have, for example, five variables. The null hypothesis of no-cointegration would be H0: α1=α2=α3=α4=α5=0. What is the
correct form for the alternative hypothesis of cointegration? Is it
1) (α1≠α2≠α3≠α4≠α5≠0), or
2) At least one the α's is not zero, or
3) α1≠0, α2≠0, α3≠0, α4≠0, α5≠0, or
4) Some other form
Thanks
Sal
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Dear professor before I estimate the ardl should I have to perform the causality test? if the answer is yes, then how should I
proceed if I have some variables that are I(1) and some I(0), because I know can estimate the ardl with different integrated
series, but I cannot perform the causality test. Thanks
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Good Day
With respect to the direction of influence, I am not certain how this should be interpreted. Apart from referring to theory,
how should the signs be interpreted out of Eviews9.
My confusion stems from the fact that in Johanson Test result in eviews8 the signs in the cointegration equation were
swapped i.e. if they were -ve they were to be interpreted as +ve.
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Dear Prof.
Looking at your example of bivariate equation with the same break period, now, If one has a multivariate equation (e.g.
having five variables), and each variable has a different break date. Can we include all the break point in our estimation?
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Thank you Prof. Another question on multivariate equation with different break period. I use test for structural
break purposely to further confirm that non of the variable is I(2), after that i did not include dummy for the
break period in the regression instead i use CUSUM and CUSUMSQ test to test the overall stability of the
parameters, and there are stable within the 5% significance level. Does this procedure appropriate?
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Thank you very much, Professor, I have a question: I want to measure the impact of the development of the banking sector
on economic growth using ARDL model , and I have six variables, you follow the same steps?
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ﻋدوﻟﺔ دالSeptember 17, 2015 at 11:12 AM
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if we have multiple break for different regressor, for example 1994, 1999, 2001, 2004 for 4 different regressor, is
it enough to create 1 dummy variable that include all the break?
If you have 4 breaks for the same variable, then this implies 5 different "regimes" and you will need to construct 4
separate dummy variables.
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Dear Prof. How should I "Breakpoint Unit Root Test" for six variables?, How is the expression within the form?, Did you see
that 35 of the observations adequate ?, variables are:
Real gross domestic product per capita variable dependent
Matrix variable banking development
Consumer prices inflation
Government spending ratio GDP
Ratio of capital accumulation to GDP
Trade openness variable
Waiting for your answer, thank you Professor
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I don't wish to sound rude, but I just don't have time for this. Sorry!
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You will need to contact EViews directly - I don;t work for them! :-)
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Angeline - the breakpoint tests in EViews 9 give you all that you need.
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Dear Professor Giles,
Just wanted to thank you for the blog on ARDL estimation which has helped me a lot. I wanted to ask you a question related
to ARDL. I am running three country-growth equations in Eviews 9 and I have 42 observations for each country (1970-2013).
However, I am concerned about the number of regressors (both fixed and dynamic) that are being generated from my ARDL
growth equations - at least 22 parameters (including both short and long-run coefficients). Can I still proceed with this
regression estimation and what would be the effect on degrees of freedom. Or in other words, what is the limit on the
number of regressors that I can include with a sample with 42 observations. The regressors that I have included are
investment, human capital, population growth, government consumption, real interest rate, real exchange rate, inflation
and fixed regressors (dummy variable for multiparty democracy, foreign aid, commodity price and foreign direct
investment). In total I have 11 regressors with a sample of 42 annual observations.
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Obviously, you have enough degrees of freedom to fit the model. However, your degrees of freedom will be
limited and your inferences will not be very "sharp".
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Dear Prof.
Thank you for your elaborate post. It really helps us. I downloaded your linked Eviews Code but there is some error. It is not
opening. Kindly fix it. Thank you.
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Thanks _ I realise there is a problem. EViews issued a "patch" to the package so the old code won't run. I'll get to it as soon
as I have a chance.
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The R-square is reported in the output. As with any OLS regression, click on the "VIEW" tab and you can get
RESIDUAL DIAGNOSTICS, and STABILITY DIAGNOSTICS, as usual.
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THANK YOU FOR REPLY, BUT MY DATA IS PANEL DATA, AND THERE IS NO STABILITY DIAGNOSTIC WHEN WE SELECT RESIDUAL
DIAGNOSTIC IN EVIEWS 9, WHAT SHOULD WE DO TO TEST STABILITY OR JUST IGNORE THE TEST? THANK YOU
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Hi Professor,
My all variables are I(1), not mix of I(0)&I(1). Can I still use ARDL instead of ECM as I get better results using ARDL
model.Thank you.Oz
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Hi professor,
you said in the last part "Third, a 10% change in the price of crude oil will result in a long-run change of 7% in the price of
retail gasoline. "
is it 7% or 70% ?
Thanks
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Sir, can you tell the different correlogram q statistics and lm serial correlation test and which is more important as a test in
ARDL estimation.
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Dear Professor,
In your example you use 2 variables but do we know why EViews reports k=1 (in the bounds testing output)? In the original
Pesaran et al. (2001) paper k stands for the number of regressors which in this case is k=2. Also EViews reports the k=1
critical bounds (p. 301 from Pesaran et al., 2001) while should report k=2. Thank you very much.
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Dear professor, I really appreciate your very helpful blog on ARDL model. I am running ARDL for my master thesis. However, I
did not include the linear trend in the specification (I choose rest. constant), and the results are very reasonable. Today
after reading your blog, I tried selecting the linear trend and the results become not statically significant for most of the
variables. Can I exclude the trend ? Can you explain why there is a big difference when including and excluding the trend. Is
it necessarily include the trend all the time?? Thank you in advance for your support!
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You don;t have to include the trend term - if it's insignificant, then by all means drop it.
many thanks professor for your prompt explanation! Your econometrics blog is amazing!!
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Anonymous February 2, 2016 at 12:17 AM
Thanks for the good info Prof. My questions, is it necessary to run a LM test for testing and detecting the multicolinearity
and heteroskedastcity test before we running the bound test and cointegrating and long run test? or its just enough by
looking the Q stats.
if there is no long run relationship based on bound test, then what next? are we going to stop there and then give up?
Thanks Prof.
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There seems to be some confusion here. There is no LM test for multicollinearity. You could test for
homoskedasticity. The Q statistics tell you about the serial independence of the errors - nothing to do with
heteroskedasticity.
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Thanks for the post. I have a question regarding the modeling. Ex what if I have 10 variables where some are strongly
correlated and I want to assess the long/short run relationship with a variable y. Is it possible to split the model into two
ardl? one for 5 variables and one for the other 5 and still obtain relevant results? I saw a similar question on stackexchange
(no answer) so I though I would ask you.
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No, it's not, and the same applies for any regression model.
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Dear proof for reporting short term effects do we need vecm model or with eviews9 can we get it from directly ardl model
<?
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For ardl model can we use non stationary variables? after checked variables stationary levels and if there is no I(2). Which
one is better to take diferences and add to non stationary variables after make them stationary or add them to model non
stationary
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Yes you can - that's the whole point of the ARDL modelling.
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I wanted to thank you so much for the blog on ARDL estimation which has helped me a lot. I wanted to ask you a question
related to ARDL. I am running one country-growth in Eviews 9 and I have 25 observations (1990-2014). However, I have one
dependent variable and three independent variables. Can I still proceed with this regression estimation and what would be
the effect on degrees of freedom. Or in other words, what is the limit on the number of regressors that I can include with a
sample with 25 observations.
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Degrees of freedom are determined in the same way here as for ANY regression model. With that few
observations, it's unlikely that you'll be able to specify an appropriate lag structure.
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Anonymous April 16, 2016 at 8:56 AM
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Dear Sir,
Thank you very much for your post! It really helps.Could you please explain or show me any papers to read through related
these problems?
1- why is heteroskeadasticity not a problem in ARDL model? Or if applicable, is there any ways to deal with this problem?
2- Some people said that when the absolute value of ECT (-1)is larger than 1, it is still acceptable in financial research. Is it
true?
I really appreciate your help!!!
Regards,
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1. It's not that het. isn't a problem - it's unlikely to be present with time-series data.
2.Nope, it's not true.
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Dear Professor,
Is it feasible to use growth rates (f.e D(lngdp) or growth rate of exports)as our data to avoid problems related with the order
of integration? or maybe because of the difference-nature of some aspects of ARDL techniques our results would be from the
point of view of economics non-interpretable?
Socrates
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Hi Giles, Thank you for your sound blog at first. I have one question to you. You constructed a dummy variable "break". It's
okay. But your break variable in the estimated ARDL model is not statistically significant since P-vaule is 0.0668 > 0.05. Do
you disregard/ignore this case? For example, I did similar ARDL model. And I obtained that P-value of Break is 0.3097. Should
I continue to use this model with Break? Or should I delete this dummy? Or does there exist a mistake in my case? Thank you
for your helps.
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As I'm sure yo know, the thing about a p-value is that it's up to you how you interpret it. At what point is it so
small that you decide to reject the null hypothesis. My p-value was about 6%, so if I had a 5% significance level in
mind I would not reject, but I WOULD reject the null (of a zero coefficient value) at the 10% level. For this
reason, I retained the dummy variable. With a p-value as large as yours, I think that most people would not reject
the null. That is, they would remove the dummy variable.
Mr Ozcan maybe you are able to retain the dummy in the case that your ARDL model faces stability problems with
Cusum tests and the dummy variable ''fixes'' f.e the CUSUM of Squares diagnostic for 5% level. I am not sure if that
is legitimate although i have seen it before in papers. What do you think Dr Giles?
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You can use the ADF test or the KPSS test to test for the stationarity of the data even if the series is non-normal.
You should avoid the Johansen procedure for testing for cointegration in this case, but the Engle-Granger 2-step
procedure is still valid.
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Dear professor,
Thank you very much for your post. I´m running an ARDL for my master thesis, where i have in total 6 variables. I have seen
many papers use every variable in turn as dependent variable when testing for cointegration Is that correct? In that case, is
it possible to change the specification (constant, constant + trend, none) depending on which variable you have as
dependent?
Thank you very much
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Dear Dave, Fede is quite right in saying that many papers use ARDL approach by normalising on each variable in
turn. I guess, one should normalise on a variable if the right hand side variables are the forcing variables.
Especially literature in energy economics i.e. role of energy in growth is awash with such papers.
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dear professor,
thank you very much for your post i am working with panel data in eviews 9 as i have done with the ardl but please help me
whether it is possible to test the ardl bound test for panel data in eviews
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Dear Sir,
I run the ARDL model and face the "singular matrix" error. How can i solve this?
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I have a question regarding the “cointegrating form” of the model. If the coefficient of CointEq(-1) is negative but lower
than -1, would the ECM between the two variables of interest still be validated ? Would it mean that there is no “stable”
long-run relationships between the two variables?
According to the Engle & Granger and the Johansen methodologies, this coefficient must be negative but higher than -1
Kind regards
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Anonymous July 21, 2016 at 6:35 AM
Dear Professor Giles,
I have benefited greatly form your blogs. THANK YOU! My question is related to the question above - if my model
is great in every aspect (significant and correct signs) but the coefficient of CointEq(-1) is -1.56 (which is over-
correcting), what do you think may be happening? What do you mean by "over correcting" and what may be
causing it? Can I use that model still or would it be inappropriate to keep that model?
I look forward to your response.
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Dear Professor,
Thank you for your help in understanding this model, there are not that much information about how to proceed and
understand what the results means and what to select.
I just have one question: if you see that the variable LOG_CRUDE has a unit root, why you do the ARDL model without the 1st
difference of that serie but with the non-stationary serie? for this model is not requeriment for the series to be stationary? if
not, what about spurious correlations?
Regards.
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That's the whole point about the ARDL bounds testing. You can use a mixture of I(0) and I(1) variables - the
"bounds" are for "all I(0)" and "all I(1)" extreme situations.
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Thank you for your fantastic posts ! I don't want to use any lag of the dependent variable in my regression (its capturing most
of the variations in the model). Is that possible?
Thanks
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No, it's not - that will totally invalidate the ARDL/bounds testing procedure.
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Dear Professor,
Thank you very much for the excellent blog post. This is very useful. I'm testing ARDL for the first time. I got the results for
the bounds test and long run coefficients. However I have a question on ECM. According to you error correction coefficient is
Coint(-1) taken from the long run form. How can I interpret it?
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As in any error-correction model, it tells you the speed of adjustment from a short-run out-of-equilibrium position
to the long-run equilibrium
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Dene - you should be able to resolve this by adding one or more ADDITIONAL lags of the dependent variable you're
using in the ARDL model, beyond the max. number suggested by SIC or AIC.
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Respected Sir!If I am facing serial correlation in residual of regression output. What should I do pls?
Muhammad Ajmai
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You should be able to resolve this by increasing the maximum lag length for the dependent variable.
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Faisal no, you can't do this with an ARDL model. You need to use a VAR model with your I(1) variable first-
differences, and the other variables in levels. (You can also difference the I(0) variables if you wish.)
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I really liked the way you had posted your blog. Keep sharing more with us.
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Yes, that's what it's designed for, as long as you believe that there is only one cointegrating vector. Otherwise
Johansen's methodology should be used.
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Dear Professor,
Should I apply tests lik serial correlation (Breusch–Godfrey) and heteroskedasticity(ARCH) even after using the HAC(Newey-
West) option in Eviews 9?
Thank you
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Yes - especially tests for serial correlation. The presence of the latter could signal a mis-specification of the lag
length(s). And the bounds test critical values are only valid if the errors are independent,.
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Lower and Upper-bound critical values are taken from Pesaran et al. (2001), Table CI(ii) Case II.
Thank you
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