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Noncausal Vector Autoregression

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  • Lanne, Markku
  • Saikkonen, Pentti

Abstract

In this paper, we propose a new noncausal vector autoregressive (VAR) model for non-Gaussian time series. The assumption of non-Gaussianity is needed for reasons of identifiability. Assuming that the error distribution belongs to a fairly general class of elliptical distributions, we develop an asymptotic theory of maximum likelihood estimation and statistical inference. We argue that allowing for noncausality is of particular importance in economic applications which currently use only conventional causal VAR models. Indeed, if noncausality is incorrectly ignored, the use of a causal VAR model may yield suboptimal forecasts and misleading economic interpretations. Therefore, we propose a procedure for discriminating between causality and noncausality. The methods are illustrated with an application to interest rate data.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Econometric Theory.

Volume (Year): 29 (2013)
Issue (Month): 03 (June)
Pages: 447-481

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Handle: RePEc:cup:etheor:v:29:y:2013:i:03:p:447-481_00

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Citations

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Cited by:
  1. Lanne Markku & Saikkonen Pentti, 2011. "Noncausal Autoregressions for Economic Time Series," Journal of Time Series Econometrics, De Gruyter, vol. 3(3), pages 1-32, October.
  2. Lanne, Markku & Luoto, Jani & Saikkonen, Pentti, 2012. "Optimal forecasting of noncausal autoregressive time series," International Journal of Forecasting, Elsevier, vol. 28(3), pages 623-631.
  3. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.
  4. Lof, Matthijs, 2011. "Noncausality and Asset Pricing," MPRA Paper 30519, University Library of Munich, Germany.
  5. Nyberg , Henri & Saikkonen, Pentti, 2012. "Forecasting with a noncausal VAR model," Research Discussion Papers 33/2012, Bank of Finland.
  6. Lof, Matthijs, 2011. "GMM estimation with noncausal instruments under rational expectations," MPRA Paper 35536, University Library of Munich, Germany.
  7. Saikkonen, Pentti & Sandberg , Rickard, 2013. "Testing for a unit root in noncausal autoregressive models," Research Discussion Papers 26/2013, Bank of Finland.
  8. Markku Lanne & Jani Luoto, 2014. "Noncausal Bayesian Vector Autoregression," CREATES Research Papers 2014-07, School of Economics and Management, University of Aarhus.

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