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ARDL Cointegration Tests for Beginner - UM

1 ARDL Cointegration Tests for Beginner Tuck Cheong TANG Department of Economics, Faculty of Economics & Administration University of Malaya Email: DURATION: 3 HOURS On completing this workshop you should be able to: understand the concepts of Cointegration and its application as well. perform Cointegration Tests by using EViews software; and interpret the outputs and estimates. 1. UNIT ROOT TEST An estimate of OLS (ordinary least squared) regression model can spurious from regressing nonstationary series with no long-run relationship (or no Cointegration ) (Engle and Granger, 1987). Stationary a series fluctuates around a mean value with a tendency to converge to the mean. For example:- 1962196719721977198219871992199720022015 1050-5 Malaysia: Consum er price index: Inflation rate%pa Non-statioanry a series wanders widely without any tendency to converge; it is relatively smooth.

If the computed statistic falls within the critical value band, the result of the inference is inconclusive and depends on whether the underlying variables are I(0) or I(1). It is at this stage in the analysis that the researcher may have to carry out unit rot tests on the variables. The long run coefficient (or elasticity) of x, that is, E

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