Can I estimate the ECM of Case 2 ARDL with OLS?

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stpan
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Joined: Mon Jun 07, 2021 1:03 am

Can I estimate the ECM of Case 2 ARDL with OLS?

Postby stpan » Thu Jun 10, 2021 3:09 am

I understand that the ECM is just a reparmatrization of the ARDL estimated model (following Pesaran et al, 2001).

However, is it possible to estimate directly the ECM using OLS in the Case 2 (resticted constant)? Although it was staight-forard in case 3 (unrestricted constant), I did not manage to achieve this in case 2 (comparison between the ARDL module generated ECM and the same OLS generated ECM). I suppose that the "problem" is that I cannot figure out how to include the μy and μx (as per Pesaran et 2001 pp 295) in the OLS equation?

Related to the above, Is it correct to assume that the diagnostic tests (normality, autocorrelation etc) based on the ARDL are identical to the ones of the ECM, and therefore I can report the statistics of the former as well as for the ECM?

Many thanks in advance for your guidance.

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