DOLS/FMOLS/CCR estimation of the LR relationship

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bobreednz
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Joined: Mon Jul 15, 2013 5:13 pm

DOLS/FMOLS/CCR estimation of the LR relationship

Postby bobreednz » Sat Oct 26, 2013 4:17 pm

BACKGROUND: Given two variables y and x, for which one suspects there is a LR relationship such that y = beta*x, the specification for the ARDL bounds test looks like this (ignoring deterministic regressors and lagged differenced regressors):

D.yt = b1*yt-1 + b2*xt-1 + b3*D.xt + et .

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QUESTION: If I have a combination of I(0) and I(1) variables, and I conclude that a LR relationship exists using the Pesaran, Shin and Smith (2001) ARDL bounds test, can I then estimate, and do hypothesis testing, on the LR relationship using DOLS, FMOLS, and/or CCR? Or can I only use the DOLS, FMOLS, and CCR procedures if all the variables are I(1)?

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