The majority of the blog-related comments and requests for help that I receive come from the one person - called "Anonymous".
(S)he seems to have very broad interests.
Here's a very recent request for help relating to ARDL models - something that I've posted about here and here.
"I am working on income inequality. Can I use ARDL as I have only 27 annual observations? Also does ARDL itself takes care of problem of endogeneity? And what about if there is multicollinearity among explanatory variables - can we still use ARDL? Is any EViews code available to run ARDL?"Taking the questions in order........
- You have nearly 30 years of data, and the thing that matters when testing for unit roots and cointegration is the "span" of the data - not the number of observations. See here. So, in one sense, 30 years is good news in the context of ARDL modelling. On the other hand 30 observations is going to be somewhat limiting when it comes to determining the appropriate lag structure for the ARDL model. I'd be somewhat concerned that you may end up under-stating the lag lengths (specially if more than two variables are involved), and this will have disastrous consequences. So, I'd be very careful!
- ARDL modelling doesn't take care of endogeneity issues.(I assume you're thinking about having regressors that are correlated with the regressors, even asymptotically.) However, this problem is unlikely to arise as long as the errors are serially uncorrelated, because your regressors are typically going to lagged levels, or lagged differences. Also, keep in mind that if cointegration is present, OLS is going to be super-consistent. That is, it's convergence rate will be T-1, as opposed to the usual T-1/2. In short, you should have no problem. However, if this is a concern, you could always use I.V. estimation rather than OLS.
- Don't get me started about multicollinearity! ( See here, here, here, and here.) I doubt if it's a problem - look at all the differencing of the data that you're doing when you estimate an ARDL model.
- To estimate an ARDL model and undertake bounds testing, all you need is a package that will do OLS regression. If you are using just two variables, and you want to automate the lag-length specification for your ARDL using EViews, there's an "add-in" that I discussed some time ago in this post.
Now - I really should get some work done!