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An augmented autoregressive distributed lag bounds test for cointegration

Author

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  • Sam, Chung Yan
  • McNown, Robert
  • Goh, Soo Khoon

Abstract

An augmented autoregressive distributed lag (ARDL) bounds test for cointegration involves an extra F-test on the lagged levels of the independent variable(s) in the ARDL equation. Originally, this testing strategy was introduced using the bootstrap procedure. This paper provides both the small sample and asymptotic critical values for easier implementation of the test, making it applicable for a broader range of researchers. Two advantages of this augmented ARDL bounds test are that the assumption of an I(1) dependent variable is not necessary, and a clear conclusion on the cointegration status is provided by the three tests. The augmented ARDL bounds test is demonstrated using an empirical study on government taxation and expenditures. The tests support the tax-and-spend hypothesis of the budgetary policy for the US, the UK, and France.

Suggested Citation

  • Sam, Chung Yan & McNown, Robert & Goh, Soo Khoon, 2019. "An augmented autoregressive distributed lag bounds test for cointegration," Economic Modelling, Elsevier, vol. 80(C), pages 130-141.
    • Handle: RePEc:eee:ecmode:v:80:y:2019:i:c:p:130-141
    DOI: 10.1016/j.econmod.2018.11.001
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    Keywords

    ARDL bounds test; Cointegration; Degenerate case; Lagged independent variable(s) test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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