SAEED AAS KHNA MEO,

ARDL OR BOUND TEST

(AUTOREGRASSIVE DISTRIBUTED LAG)
WHEN WE USE ARDL APPROACH?

Stationary in data is most important so that’s why , we have to decided what approach is good for our
analysis , it is thumb rule that if our variable are stationary at level then we apply simple regression , but
if our variable are stationary at first difference then we apply ECM ,on the other hand, if our variables
stationary at level as well as first difference or second difference (means stationary is mixed like few are
stationary at level and few variable are stationary at first or 2 nd difference then we apply ARDL )

EXAMPLE: let suppose we have three variable depended variable is gdp and other independent variables
EX and consumption.

Step one first of all select optimal leg length , for choosing optimal leg length we apply let suppose with
6 lag length , remember it is not fixed that six are necessary you can chose more or less, so take six leg
length of all variables in equation like following of all variables

Goto----QUICK-----------ESTIMATE EQUATION

D(GDP) C D(GDP (-1)) D(GDP (-2)) D(GDP (-3)) D(GDP (-4)) D(GDP (-5)) D(GDP (-6)) D(EX (-1)) D(EX (-2))
D(EX (-3)) D(EX (-4)) D(EX (-5)) D(EX (-6)) D(CONS (-1)) D(CONS (-2)) D(CONS (-3)) D(CONS (-4)) D(CONS (-
5)) D(CONS (-6)) GDP(-1) EX(-1) CONS(-1) and ok

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Now write down the value of

Akaike information criteria 48.33

Showart information criteria 48.4

Step two :Now again run this model and decrease leg length, like run this model with 4 leg length

D(GDP) C D(GDP (-1)) D(GDP (-2)) D(GDP (-3)) D(GDP (-4)) D(EX (-1)) D(EX (-2)) D(EX (-3)) D(EX (-4))
D(CONS (-1)) D(CONS (-2)) D(CONS (-3)) D(CONS (-4)) GDP(-1) EX(-1) CONS(-1)

Akaike value = 48.25

Shawarz = 49.0

Step three again run model with two leg lengths

Akiake value=48.33

Shawrt value=48.42

Now we can decide that model 1 is good because showarts and akaike information criteria values are
less,, note , less values of shawarts and akaike are good.

Serial correlation Step four. Open the window of results good models. Means model with six length was
good so we will open that window

Go to view of resulted window – residual – serial correlation,,, option will appear about the leg length
take leg value as your model have means this model have six ,but you select according your model ,,,
(means jtni leg length se apka model good that)

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NULL HYPOTHESIS FOR SERIAL CORRELATION =there is no serial correlation

ALTERNATIVE HYPOTHESIS =there is a serial correlation

Note:

If value of observe R square comes equal to 0.061 or more then we will say there is no correlation
,means it is good for us to have larger value than 5%.

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Now r square value is less than 5% means there is serial correlation in data.

Step five ,, now next we will check either m model is stable or not ,,, for the window of seriol correlation
result view- stability diagnose—recursive estimation ,,,,

Not in this test zigzag blue line do not go beyond from the red line, if zigzag blue line cross the red line
means our model is not stable

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Step six now we are going to run equation to see whether there is any long run association or not in our
variables , so go that window which was the best as model mean again run equation with 6 leg length
because it was good for us , as akaike and shawrts values were less.

Now I have run my equation again and results are these

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Now count these results such as c1 c2 c3

and so on till cons (-1)… first c also
including and all these values will be

All ‘’’C’’’ will be 22

Means 6 gdp, 6 ex, 6 cons , 1 upper c, and

3 gdp-1 ex-1 and cons -1 all 22

Note we have need only these last

parenthesis values, thesis starts from

C, 20, C21, C22

NOW we are going to cheak either there is long run relation or not , so we from the help of these results
apply wald test …..

Views –coefficient -Wald test ok ….

Stay on the above file and then go to views etc. in wald test write like this

C(20)=c(21)= c(22)=0 and enter now F- VALUES COME WHICH WILL TESLS AS THERE IS ANY ASSOCIATION
OR NOT …

From F- statis if F values come greater then upper bound 4.85 then we will say that we are going to
reject null hypothesis which means was that all these variables are equal to zero ….

If our values comes les then 4.85 we will say there is no long run relation, all variables don’t move
together, thanks