ARDL

JOP 88/3 pp. 1216-1230 2026-07-01 Original The Answer Was There All Along: Worry About the Dynamics! Ali Kagalwala, Guy D. Whitten Abstract In an influential article in 1974, Clive Granger and Paul Newbold demonstrated that regressions with variables that have unit roots often lead to spurious inferences. However, researchers have overlooked the fact that Granger and Newbold’s results were from a static time series model plagued with residual autocorrelation. We demonstrate, analytically and through simulations, that, under most circumstances, adding lags of both the outcome and predictor(s) can account for serial correlation and avoid spurious inferences. We thus recommend the use of a general modeling strategy, an autoregressive distributed lag model with multiple lags of the outcome and predictor(s), as one possible alternative of model choice that is less likely than other commonly used models to reach incorrect conclusions about true effects. Furthermore, our recommended approach performs well relative to the Webb, Linn, and Lebo bounds approach, the latest in a series of techniques designed to avoid the problematic nature of unit root testing.