5/20/2017 ARDLModelHossainAcademyNote

ARDLModel
Hossain Academy Note

EDITOR
SayedHossain
ARDL Model

AUTHORS 1.WhatisARDLmodel?
ProfessorSteveMakambicommentedassuch>>ThereisnodoubtthatEviews9isthe
AbuSubhi
AdeKutu bestwhenestimatingARDLmodelbecauseofthefollowingreasons:
AfolabiLuqman 1.Laglengthcriteria:Appropriateno.oflagsforeachoftheindependentvariableandthe
AbdullahSonnet
AsadZaman
mostparsimoniousmodelischosenautomatically.
AtiqRehman 2.ItestimatesPesaranetal.,ARDLmodelwhichmayincludeI(1)andI(0)variables(butnot
Burcuzcan
GhumroNiazHussain
I(2))
MuhammadAnees 3.Testsforcointegrationusingboundtestapproachisprovidedforinthemodule
MohammadZhafran 4.Itincludesaprovisionofestimatingtheerrorterm(cointegratingcoefficient),shortrun
MuzammilBhatti
MonisSyed andlongruncoefficientsdirectly.
MinePD
MoulanaN.Cholovik
MuiliAdebayoHamid 2.HowtorunARDLmodelusingSTATA?
NicatGasim ProfessorAymenAmmaricommentedassuch>
NajidIqbal
NasiruInuwa 1.FirstcalculatetheFValuebyBoundtestingapproach,bygettingtheFvalueyoucanbe
NomanArshed inpositionwhethercointegrationexistamongyourindicatorsornot.Afterconfirmationthe
RapelanoroNady
SaeedAasKhanMeo cointegarioninyourmodelyoucangetARDL(Longrun)andECM(shortrun)results,
SeyeOlasehindeWilliams 2Commandisardldepvarriableindepvar1indepvar2indepvar3,aicecregstore
SubornoAditya
SayedHossain (ecreg)
ShishirSakya Othergeneralcommandare:
SheikhMuzammilNaseer
TellaOluwatobaIbrahim
estatdwatson(DurbinWatsonstatistics,at1storderautocorrelation).
YounesAzzouz estatarchlm(ARCHLMtestforhigherorderautocorrelation)
estatbgodfrey(BreuschGodfreyLMtestforhigherorderautocorrelation)
POPOLAR BLOGS estathottest(BreuschPaganHeteroscedasticitytest)
Dave estatovtest(RamseyRESETtest)
MeoSchoolofResearch
ShishirShakya estatvif(TestfortheMulticollinearity
NomanArshed

3.WhatisARDLmodel?
ProfessorAbebeDerbiecommentedassuch>ARDLisamodelwhichisconsistoflagof
thedependentvariableandlagsandleadsforothevariablestoo.Anditmaycontainboth
thelongrunandshortrun(ecm)daynamics.
UnivariateModels
4.SamplesizeinARDLmodelandcointegration
ProfessorNasiruInuwacommentedassuch>>Conventionalcointegartiontechniquesthat
requireslargeobservationscanbeappliedletaloneARDLthatcanproducerobustresult
eveninsmallobservations.

5.WhatisARDL?
ProfessorAndhykaNugrahacommentedaboutARDLModelassuch>>>Commonlywe
thingauthorsonacademicpapersputalldiagnostictestresultfromfirstmodelARDL(the
variablesofmodelatlevel)onlastresult,butonrealitythediagnosticresultfirstmodel(for
ArdlBoundTesting)andlastmodel(cointegratingformandlongruncoefficient)isdifferent.
iwasaskinginthisforumandanotherforumstatisticbutnobodytellmehowtodo.mostof
themsuggestmetopresentdiagnosticresultandtestingrobustnessforfirstmodel(which
allvariablesatlevel).iseachbyselfandthenifoundthat"thekeys"is"equationlongrun"on
"cointegrationform"fromfirstmodel.wemust"generate"equationlongrunandmakingnew
variablewithnameECT.thenestimatecointegratingmodelonleastsquaretopresentshort
andlongruncoefficient(finalresult).

6.EstimateARDLmodelusingSTATA
ProfessorNomanArshedhasestimatedARDLmodelusingSTATAassuch>
MultivariateModels
https://nomanarshed.wordpress.com/2015/08/16/estimatingardlwithcointegratingbounds
instata/

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7.HowtorunARIMAModel
ProfessorEhteshamAshrafhasgivenasourceasbelow>>
https://www.otexts.org/fpp/8/

8.EVIEWS9isthebestforARDL
ProfessorSteveMakambicommentedassuch>>ThereisnodoubtthatEviews9isthe
bestwhenestimatingARDLmodelbecauseofthefollowingreasons:
1.Laglengthcriteria:Appropriateno.oflagsforeachoftheindependentvariableandthe
mostparsimoniousmodelischosenautomatically.
2.ItestimatesPesaranetal.,ARDLmodelwhichmayincludeI(1)andI(0)variables(butnot
PanelDataModel I(2))*******thisformewasaEurekamoment*****
3.testsforcointegrationusingboundtestapproachisprovidedforinthemodule
4.Itincludesaprovisionofestimatingtheerrorterm(cointegratingcoefficient),shortrun
andlongruncoefficientsdirectly

9.HowtoremoveserialcorrelationfromARDLmodel?
NomanArshedcommented>Trybiggerlagorder.

SeyeOlasehindeWilliamscommneted>Serialcorrelationisnotaprobleminardlifyou
choosesufficientlags.

TellaOluwatobaIbrahimcommented>practicalexperiencehasshownthattheproblemcan
besolvedchangingthelagselection.Iamsurehedidn'tuse11lagmodel...soheneedsto
becarefulinlagselectiontopreventtheproblemofmicronumerousity

SeyeOlasehindeWilliamscommented>CheckStock&Watsonpage612

ZiaEcoMarwatcommented>itsnotaproblembecauseARDLhandeltheserialcorrelation
prob...

OussamaBAcommented>Theaimofardlmodelistoremoveserialcorrelation.Butyou
mustchoosethecorrectlags.IfyouchoosesyourlagsassuggestedbyAicandSbccriteria
yourmodelmustbegood.Butthinkaboutchoosingdifferentlagsforyourdifferent
variables.

SheikhMuzammilNaseercommented>Justrunthemodelwithdefaultlag...

10.HowtointerprettheARDLmodelresult?
SheikhMuzammilNaseerpostedthisfigurebelow.(Jan13,2017)

SayedHossaincommented>Theerrorcorrectionterm(1.292)hereisnegativeand
significantmeaningthatthereisalongruncausalityrunningfromindependentvariablesto
dependentvariable.Italsoconfirmsthatallthevariablesarecointegratedorhavelongrun
relationship.Wecanalsosaythatabout129.27percentgapbetweenlongrunequilibrium
valueandtheactualvalueofthedependentvariable(FDI)hasbeencorrected.Itcanbe
alsosaidthatspeedofadjustmenttowardslongrunequilibriumis129.27percentannually
(provideddataisannual).Alsowecansaythatsystemcorrectsitspreviousperiod
disequilibriumataspeedof129.27%annually.Butthespeedoradjustmentat129.27%

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seemstobeoveradjustedormaynotbepractical.

HimmyKhancommented>Theerrorcorrectioncoeffshouldnotbelesserthen(1).Not
goodforthemodel.Recheckyourdataandmodel.

DecemberMancommented>speedofadjustmenttoequilibriumis129%.

AbdulRahmanNizamanicommented>Anditalsomeansthereisasignificantlongrun
relationshipamongthevariables.

NomanArshedcommented>Itisovercorrecting.Notasustainableequilibrium.

OlasehindeTimilehincommented>NomanArshedhadsaiditall.Somethingmustbe
wrong....errorcorrectiontermshowsthat....equilibriumconvergencedoesnotexist....Model
mayneedsremodification...Linearmodelmaynotbebestoption.Theremaybeneedto
correctforbreak...Almost,itcanrevealthetruenatureofthedata(leaveitandfindits
Causes)

JijieHousburgcommented>Normallyweshouldget1<ect<0

OlasehindeTimilehincommented>becausetheremustbeshortrundynamicthatdrivethe
economytowardsasteadystate(longrun)..Sincethecoefficientofequilibriumcorrectionis
notvalideconomically.Longrunrelationshipisnotfeasiblehere

NadiaAmeercommented>Thismightbecozofnotselectingappreciatelaglength....Ialso
facedsameproblemsinmymodel...

SaudAhmaderrorcorrectiontermmustbebetween0to1

UdegbunamNorrisChinonsocommented>Equilibriumconvergencedoesnotexist.

11,LagselectioninARDL
BurcuzcanpostedthefollowingARDLlagselectionfigure.

AleemAkhtarcommented>Youcanchoosewhateverlagsyouwantonthebasisoflowest
AIC/SICvalues.Moreoverifyouarenotgettingsignificantresults,youcanchangelagsin
bothoptions.

SaudAhmadcommented>Youcanusetheautomaticselectioncriteriainitially.Andthen
youcanreduceyourmodelbytestingristrictionsthroughwaldtest.Asyourdataisnotlarge
enoughsoIsuggesttotakelessnumberoflagstoavoiddegreeoffreedomproblem.
Usuallyforannualdata1or2lagsareenoughandforquarterly4lagsareenough.

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12.Interprettheresult
PareeshayJahanxebKhanpostedbelow.

DavidMendycommented>Theerrorcorrectioncoefficient,estimatedat0.2060ishighly
significant,hasthecorrectnegativesign,andimplyalowspeedofadjustmentto
equilibrium.AccordingtoBannerjeeetal.(2003)ascitedinKidanemarim(2014),thehighly
significanterrorcorrectiontermfurtherconfirmstheexistenceofastablelongrun
relationship.moreover,thecoefficientoftheerrorterm(ECM1)impliesthatthedeviation
fromlongrunequilibriumlevelof(dependentvariable)ofthecurrentperiodiscorrectedby
20.60%inthenextperiodtobringbackequilibrium.

PareeshayJahanxebKhancommented>Isitconvergentordivergenttotheequilibrium??

ImranRjncommented>iamsure,itisconvergent...

13.WhataretheassumptionsofARDLModel

SaeedAasKhanMeopostedbelow>

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14,WhatshouldbetherightvalueoferrorcorrectionterminARDLmodel?
ProfessorTellaOluwatobaIbrahimcommented>Iseenothingwrongintheoriginalpost...
basically,thearetwoschoolofthoughts.therigidproponentsof0to1andotherswhichsee
nothingwrongfrom1to2likeNarayanKumar(2006).

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