Determinants of economic growth in ARDL model - nominal or real variables?
My experience is that most of the papers estimating these sort of regressions use real variables, all of them deflected with the same index. As Roy says, you not want to confound an effect by inflation.

For example, assume the "true" model is that with variables in real terms:

$$ Y_t = \beta_0 + \beta_1 X_t $$

Converting into nominal variables, you get:

$$ Y_tp_t = \beta_0 p_t + \beta_1 X_tp_t $$

Then, a correct estimation of the "true" model when using nominal variables would require you to add prices as a regressor (or inflation if using log of differences). Thus, you have a further robustness check of your model by estimating it in nominal terms and adding inflations as a regressor.



Someone could rightly ask, what if the "true" model is in nominal terms? That is slightly odd though. Such model would be something like

$$ Y_tp_t = \alpha_0 + \alpha_1 X_tp_t $$

But say that there is a change in $p_t$ and in $X_t$ such that $X_tp_t$ remains unchanged. And yet, $Y_tp_t$ would change because of the change in $p_t$, withouth any right-hand side variable changing - a clear inconsistency.