Bounds testing: error correction and additional variables

[Noorma]

Dear all,

I estimated the following ARDL model and tested whether yt and x1t are cointegrated by means of bounds testing approach :

Δyt = β0 + Σ βiΔyt-i + ΣγjΔx1t-j + θ0yt-1 + θ1x1t-1 + et


Bounds testing indicates that yt and x1t are cointegrated. When I estimated the corresponding error correction model (ECM), the coefficient of the error correction term (ϕ) lies between -1 and 0 and is statistically significant.

Δyt = β0 + Σ βiΔyt-i + ΣγjΔx1t-j + ϕECTt-1 + et

where ECTt=yt-c0 -a1x1t - vt

However, when I introduce additional explanatory variables (z1 to z8) in the specification (ECM), the coefficient of the error correction term doesn't lie between -1 and 0 anymore.

The specification is now: Δyt = β0 + Σ βiΔyt-i + ΣγjΔx1t-j + ϕECTt-1+ΣρkΔzk + et

k=1 to 8

Does this mean that I should have introduced the additional explanatory variables at the beginning of the procedure (before bounds testing) already? Should I test whether yt and x1t are cointegrated while considering the additional explanatory variables as exogenous variables?

Thank you so much for your help.

Here are my results: