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Diagnostic Checks for Single-Equation Error-Correction and Autoregressive Distributed Lag Models

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  • Gerrard, W J
  • Godfrey, L G

Abstract

Single equation error correction models (ECMs) are widely used in the analysis of cointegrated variables. It is important to check the specification of ECMs using diagnostic tests. Monte Carlo evidence is reported that shows that the finite sample significance levels of such tests can be sensitive to the method used to estimate long-run coefficients that yield the error-correction term of the ECM. Estimates of long-run coefficients based upon autoregressive-distributed lag (ADL) models are recommended. The applicability of diagnostic checks to ADL models for integrated variables is examined. An indirect approach to obtaining asymptotically valid checks is proposed. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Gerrard, W J & Godfrey, L G, 1998. "Diagnostic Checks for Single-Equation Error-Correction and Autoregressive Distributed Lag Models," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(2), pages 222-237, March.
    • Handle: RePEc:bla:manch2:v:66:y:1998:i:2:p:222-37
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    6. M. Hashem Pesaran & Larry W. Taylor, 1999. "Diagnostics for IV Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(2), pages 255-281, May.
    7. Davis, Joseph H. & Irwin, Douglas A., 2008. "The antebellum U.S. iron industry: Domestic production and foreign competition," Explorations in Economic History, Elsevier, vol. 45(3), pages 254-269, July.
    8. Kim, Hyun Seok & Koo, Won W., 2010. "Factors affecting the carbon allowance market in the US," Energy Policy, Elsevier, vol. 38(4), pages 1879-1884, April.
    9. Rasmus Kattai & John Lewis, 2005. "Hooverism, Hyperstabilisation or Halfway-House? Describing Fiscal Policy in Central and Eastern European EU Members," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 5(2), pages 38-47, July.
    10. Ammar Hamad Khalaf, 2011. "Impact of Financial Liberalization on Financial Depth in Iraq," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 3(2), pages 063-074, December.
    11. Veruete-McKay Leticia & Soteri Soterios & Nankervis John C. & Rodriguez Frank, 2011. "Letter Traffic Demand in the UK: An Analysis by Product and Envelope Content Type," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-28, September.
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    13. Jes??s Crespo-Cuaresma & Bal??zs ??gert & Thomas Reininger, 2004. "Interest Rate Pass-Through in New EU Member States: The Case of the Czech Republic, Hungary and Poland," William Davidson Institute Working Papers Series 2004-671, William Davidson Institute at the University of Michigan.
    14. Maja Kadievska-Vojnovic & Danica Unevska, 2007. "Price and Income Elasticities of Export and Import and Economic Growth in the case of the Republic of Macedonia," Working Papers 2007-01, National Bank of the Republic of North Macedonia.
    15. Xia, Yan & Susanto, Dwi & Rosson, C. Parr, III, 2007. "Testing the Market Integration in Regional Cantaloupe and Melon Markets between the U.S. and Mexico: An Application of Error Correction Model," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34844, Southern Agricultural Economics Association.
    16. Claus-Friedrich Laaser & Klaus Schrader, 2005. "Baltic Trade with Europe: Back to the Roots?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 5(2), pages 15-37, July.
    17. Morten Hansen, 2005. "The Irish Growth Miracle: Can Latvia Replicate?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 5(2), pages 3-14, July.
    18. Kanas, Angelos & Kouretas, Georgios P., 2005. "A cointegration approach to the lead-lag effect among size-sorted equity portfolios," International Review of Economics & Finance, Elsevier, vol. 14(2), pages 181-201.
    19. Bjørn E. Naug, 1999. "Modelling the Demand for Imports and Domestic Output," Discussion Papers 243, Statistics Norway, Research Department.
    20. Uzair Bhatti & Noralfishah Sulaiman, 2022. "The Impact of Sustainability Practices on Share Performance with Mediation of Board Members Experience: A Study on Malaysian Listed Companies," IJFS, MDPI, vol. 11(1), pages 1-22, December.

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