I have a couple of question regarding the use ECM/VECM and Johansen test for cointegration.
In my model (6 variables), I have only one variable that is Stationary in its level, the remaining five are only stationary when differenced. This gives me a mixture of I(1) and I(0) variables, which is my first issue.
I conducted the selection-order criteria for the variables and found out that the majority of the criteria's (LR, FPE, AIC) suggest we include 4 lags in the model. Based on this I performed a Johansen test for Cointegration with 4 lags, which resulted in: the "trace statistics" suggesting that there are four or fewer cointegration equations.
My question relates to the issue regarding the mixture of I(1) and I(0) variables. Will the ECM/VECM be sufficient went estimating our model? Or should I start thinking of perhaps using an ARDL model proposed by Pesaran et al. (2001). The authors specifically point out that when we have a set of regressors which have the characteristic of our mix of variables, this model is optimal.
I am a STATA (13) user and greatly appreciate any guidance.
All the best!!