Panel ARDL using EVIEWS

You can perform this test easily with the help of few steps following are Eviews steps while
in following section you will find theory about panel ARDL and how to run panel ARDL
using STATA 14, Further panel ARDL have two estimators, means we can run ARDL with
two methods but EVIEWS only one estimator known as PMG while STATA have both PMG
and MG

1. Go to quick and select estimate equation

2. Select from drop down button/combo box or from method tab below equation
specification PMG/ARDL
3. Now in equation specification tab write your equation like CO2 FDI GDP here you
can see first i write dependent variable which is co2 and after this all independent
variable and don't include "C" means constant
4. Now select fixed or automatic lags it’s all up to but if you choose automatic lags you
can assign different lag to dependent and independent variables, like it’s up-to you,
mean i can assign maximum 7 lags to dependent variable, while 4 to independent
variable, Eviews automatically choose optimal lags even you assign 7, Eviews can
select 2 as optimal, but if choose fixed lags option then assign same maximum lags
both to dependent and independent variable.
5. When you will OK results will be produce
6. Now if you want to see individual effect for different companies or country, go to
view of your result window and click on view and select cross option and OK.

Theory of panel ARDL

Preconditions regarding stationarity of panel ARDL
We can run ARDL model in three cases
When all variables are stationary at level
When all variables are stationary at first difference
Or when variables are stationary at level and first difference means in mixture nature of
stationarity …
Suppose I have 6 variables suppose 3 stationary at level and 3 at first difference so I can go
now for ARDL model
Remember we can’t run ARDL when we have second difference variable.
PANEL ARDL
Pooled Mean Group (PMG) model
The main characteristic of PMG is that it allows short-run coefficients, including the
intercepts, the speed of adjustment to the long-run equilibrium values, and error variances to
be heterogeneous country by country, while the long-run slope coefficients are restricted to be
homogeneous across countries. This is particularly useful when there are reasons to expect
that the long-run equilibrium relationship between the variables is similar across countries or,
at least, a sub-set of them. The short-run adjustment is allowed to be country-specific, due to
the widely different impact of the vulnerability to financial crises and external shocks,
stabilization policies, monetary policy and so on. However, there are several requirements for

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the validity, consistency and efficiency of this methodology. First, the existence of a long-run
relationship among the variables of interest requires the coefficient on the error–correction
term to be negative and not lower than -2. Second, an important assumption for the
consistency of the ARDL model is that the resulting residual of the error-correction model be
serially uncorrelated and the explanatory variables can be treated as exogenous. Such
conditions can be fulfilled by including the ARDL(p,q) lags for the dependent (p) and
independent variables (q) in error correction form. Third, the relative size of T and N is
crucial, since when both of them are large this allows us to use the dynamic panel technique,
which helps to avoid the bias in the average estimators and resolves the issue of
heterogeneity. Eberhardt and Teal (2010) argue that the treatment of heterogeneity is central
to understanding the growth process. Therefore, failing to fulfill these conditions will produce
inconsistent estimation in PMG.
The PMG estimator constrains the long term coefficients to be the same across countries and
allows only the short-term coefficients to vary.
Mean Group (MG) estimator
The second technique (MG) introduced by Pesaran and Smith, (1995) calls for estimating
separate regressions for each country and calculating the coefficients as unweight means of
the estimated coefficients for the individual countries. This does not impose any restrictions.
It allows for all coefficients to vary and be heterogeneous in the long-run and short-run.
However, the necessary condition for the consistency and validity of this approach is to have
a sufficiently large time-series dimension of the data. The cross-country dimension should
also be large (to include about 20 to 30 countries). Additionally, for small N the average
estimators (MG) in this approach are quite sensitive to outliers and small model permutations
(see Favara, 2003).
Dynamic Fixed Effects (DFE) model
Finally, the dynamic fixed effects estimator (DFE) is very similar to the PMG estimator and
imposes restrictions on the slope coefficient and error variances to be equal across all
countries in the long run. The DFE model further restricts the speed of adjustment coefficient
and the short-run coefficient to be equal too. However, the model features country-specific
intercepts. DFE has cluster option to estimate intra-group correlation with the standard error
(Blackburne and Frank, 2007). Nevertheless, Baltagi, Gri, and Xiong (2000) point out that
this model is subject to a simultaneous equation bias due to the endogeneity between the error
term and the lagged dependent variable in case of small sample size.
How to perform PANEL ARDL using stata
1) import your data file into stata
2) now create a pool or simple STATA give codes to each cross section or entity like if you
have different countries data or companies the u have to give specific code all countries or
companies, further if you have assign code by yourself suppose u did not write company
name like “nestles” but you indicated nestle with 111 now u see you have already given the
code but if you have simple right the name of company then u need to give also code
 egen country1=group(country) (note: if you have countries data)
 egen Company1=group( Company) (note: if you have companies data)
3) now set time which is most important

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4) xtset Company1 year, yearly (note: hear I have yearly data and company1 is new variable
which I genrate in step 2)

 here we shall Run MG (average):

5) First of all install this package to run PANEL ARDL “ssc install xtpmg, replace”
6) Suppose you think you have installed this package but still you are not sure then type in
command bar” type xtpmg”
7) If u see message of no found then install otherwise you have already install it.

8) here we shall Run PMG (average):

xtpmg d.CO2 d.energy d.gdp , lr(l.CO2 energy gdp ) ec(ECT) replace pmg

10) here we shall Run PMG (individual):

(The main characteristic of PMG is that it allows short-run coefficients, including the
intercepts, the speed of adjustment to the long-run equilibrium values, and error variances to
be heterogeneous country by country, while the long-run slope coefficients are restricted to be
homogeneous across countries.)
xtpmg d.CO2 d.energy d.gdp , lr(l.CO2 energy gdp ) ec(ECT) replace full pmg

 here we shall Run MG (average):

 xtpmg d.CO2 d.energy d.gdp , lr(l.CO2 energy gdp ) ec(ECT) replace mg

(It allows for all coefficients to vary and be heterogeneous in the long-run and short-run.
However, the necessary condition for the consistency and validity of this approach is to have
a sufficiently large time-series dimension of the data.)

 here we shall Run MG (Individual):

 xtpmg d.CO2 d.energy d.gdp , lr(l.CO2 energy gdp ) ec(ECT) replace full mg to select
between PMG and MG run hausman test following is command

 hausman mg pmg, sigmamore

Now if our probability value comes more than 5% we run PMG

If our probability value comes less than 5% we run MG
 Running DFE:
xtpmg d.CO2 d.energy d.gdp , lr(l.CO2 energy gdp ) ec(ECT) replace dfe

* Running Hausman test to choose between MG and DFE:

hausman mg DFE, sigmamore Note:

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Suppose you want to run all these tests on your data, so simple just import your data into stata
and copy command from here into stata command bar and replace my variables name with
yours.

Good luck.

Which one: MG vs DFE? Hausman-type test is applied to the difference between the MG
and the Differenced Fixed Effects (DFE). If p-value > 0.05, we conclude that the DFE model
is preferred over the MG model.

If p-value >5%, then use DFE

If p-value <5%, then use MG