Cointegration Testing and Dynamic Simulations of Autoregressive Distributed Lag Models

• Published in: The Stata journal Vol. 18; no. 4; pp. 902 - 923
• Main Authors: Jordan, Soren, Philips, Andrew Q.
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA SAGE Publications 01-12-2018
• Subjects: st0545; dynamac; cointegration; pssbounds; dynardl; autoregressive distributed lag; dynamic modeling; error correction
• ISSN: 1536-867X; 1536-8734
• DOI: 10.1177/1536867X1801800409

In this article, we introduce dynamac, a suite of commands designed to assist users in modeling and visualizing the effects of autoregressive distributed lag models and in testing for cointegration. We discuss the bounds cointegration test proposed by Pesaran, Shin, and Smith (2001, Journal of Applied Econometrics 16: 289–326), which we have adapted into a command. Because the resulting models can be dynamically complex, we follow the advice of Philips (2018, American Journal of Political Science 62: 230–244) by introducing a flexible command designed to dynamically simulate and plot a variety of types of autoregressive distributed lag models, including error-correction models.