ARDL/BOUND TEST

To capture the short and long run results, when data is not of the same order, ARDL still can be

applied. It follows the following steps and assumptions.

➢ To make it sure that any variable is not of order two i.e. I (2).

➢ Construct an unrestricted error correction model (ECM).

➢ Suitable lag length should be selected using any of appropriate selection

criteria.

➢ To make sure no serial correlation among error terms.

➢ Model shall be stable dynamically.

➢ Run the bound test; if results are in favor of existing long run relations, get long

and short run relations/parameter estimates.

EViews 9 provide the facility to run Bound test quite easy and in simple manner as

compare to previous versions and any other statistical software. The first step is performed

through unit root diagnostic process exactly similar to that described in section 3.4.2.