ARDL as an Elixir Approach to Cure for Spurious Regression in Nonstationary Time Series

Ghulam Ghouse, Saud Ahmad Khan, Atiq Rehman and Muhammad Bhatti
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Ghulam Ghouse: Economics Department, University of Lahore, Lahore 55150, Pakistan
Saud Ahmad Khan: Department of Economics and Econometrics, Pakistan Institute of Development Economics, Islamabad 44000, Pakistan

Mathematics, 2021, vol. 9, issue 22, 1-15

Abstract: In conventional Econometrics, the unit root and cointegration analysis are the only ways to circumvent the spurious regression which may arise from missing variable (lag values) rather than the nonstationarity process in time series data. We propose the Ghouse equation solution of autoregressive distributed lag mechanism which does not require additional work in unit root testing and bound testing. This advantage makes the proposed methodology more efficient compared to the existing cointegration procedures. The earlier tests weaken their position in comparison to it, as they had numerous linked testing procedures which further increase the size of the test and/or reduce the test power. The simplification of the Ghouse equation does not attain any such type of error, which makes it a more powerful test as compared to widely cited exiting testing methods in econometrics and statistics literature.

Keywords: spurious regression; missing lag value; unit root; cointegration; ARDL (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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