IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v94y2021icp649-661.html
   My bibliography  Save this article

Symbolic transfer entropy test for causality in longitudinal data

Author

Listed:
  • Camacho, Maximo
  • Romeu, Andres
  • Ruiz-Marin, Manuel

Abstract

In this study, we use multiple-unit symbolic dynamics and transfer entropy to develop a non-parametric Granger causality test procedure for longitudinal data. Monte Carlo simulations show that our test exhibits the correct size and a high power in situations where linear panel data causality tests fail, such as (1) when the linearity assumption does not hold, (2) when the data generating process is heterogeneous across the cross-section units or presents structural breaks, (3) when there are extreme observations in some of the cross-section units, (4) when the process exhibits causal dependence on the conditional variance, or (5) when the analysis involves qualitative data. We illustrate the usefulness of our proposed procedure by analyzing the dynamic causal relationships between public expenditure and GDP, between firm productivity and firm size in US manufacturing sectors, and among sovereign credit ratings, growth, and interest rates.

Suggested Citation

  • Camacho, Maximo & Romeu, Andres & Ruiz-Marin, Manuel, 2021. "Symbolic transfer entropy test for causality in longitudinal data," Economic Modelling, Elsevier, vol. 94(C), pages 649-661.
    • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:649-661
    DOI: 10.1016/j.econmod.2020.02.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999319301683
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2020.02.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Van Biesebroeck, Johannes, 2005. "Firm Size Matters: Growth and Productivity Growth in African Manufacturing," Economic Development and Cultural Change, University of Chicago Press, vol. 53(3), pages 545-583, April.
    2. Graciela Kaminsky & Sergio L. Schmukler, 2002. "Emerging Market Instability: Do Sovereign Ratings Affect Country Risk and Stock Returns?," The World Bank Economic Review, World Bank, vol. 16(2), pages 171-195, August.
    3. Christian M. Hafner & Helmut Herwartz, 2008. "Testing for Causality in Variance Usinf Multivariate GARCH Models," Annals of Economics and Statistics, GENES, issue 89, pages 215-241.
    4. Caines, P. E. & Keng, C. W. & Sethi, S. P., 1981. "Causality analysis and multivariate Autoregressive modelling with an application to supermarket sales analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 267-298, November.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    6. Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, vol. 29(4), pages 1450-1460.
    7. Broto, Carmen & Molina, Luis, 2016. "Sovereign ratings and their asymmetric response to fundamentals," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 206-224.
    8. M. Diaz & Rosario Sanchez, 2008. "Firm size and productivity in Spain: a stochastic frontier analysis," Small Business Economics, Springer, vol. 30(3), pages 315-323, March.
    9. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-1395, November.
    10. Nair-Reichert, Usha & Weinhold, Diana, 2001. "Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-171, May.
    11. Vasilis Sarafidis & Donald Robertson, 2009. "On the impact of error cross-sectional dependence in short dynamic panel estimation," Econometrics Journal, Royal Economic Society, vol. 12(1), pages 62-81, March.
    12. Diana Weinhold, 1996. "Tests de causalité sur données de panel : une application à l'étude de la causalité entre l'investissement et la croissance," Économie et Prévision, Programme National Persée, vol. 126(5), pages 163-175.
    13. Dimitris Politis & Halbert White, 2004. "Automatic Block-Length Selection for the Dependent Bootstrap," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 53-70.
    14. Matilla-García, Mariano & Marín, Manuel Ruiz & Dore, Mohammed I., 2014. "A permutation entropy based test for causality: The volume–stock price relation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 398(C), pages 280-288.
    15. Brooks, Robert & Faff, Robert W. & Hillier, David & Hillier, Joseph, 2004. "The national market impact of sovereign rating changes," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 233-250, January.
    16. Patrizio Pagano & Fabiano Schivardi, 2003. "Firm Size Distribution and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(2), pages 255-274, June.
    17. Hsieh, David A, 1991. "Chaos and Nonlinear Dynamics: Application to Financial Markets," Journal of Finance, American Finance Association, vol. 46(5), pages 1839-1877, December.
    18. repec:dau:papers:123456789/6159 is not listed on IDEAS
    19. G. Ferri & L.-G. Liu & J. E. Stiglitz, 1999. "The Procyclical Role of Rating Agencies: Evidence from the East Asian Crisis," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 335-355, November.
    20. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    21. Maria Caterina Bramati & Christophe Croux, 2007. "Robust estimators for the fixed effects panel data model," Econometrics Journal, Royal Economic Society, vol. 10(3), pages 521-540, November.
    22. Usha Nair‐Reichert & Diana Weinhold, 2001. "Causality Tests for Cross‐Country Panels: a New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-171, May.
    23. Matilla-Garcia, Mariano, 2007. "A non-parametric test for independence based on symbolic dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 31(12), pages 3889-3903, December.
    24. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    25. Matilla-Garci­a, Mariano & Ruiz Mari­n, Manuel, 2008. "A non-parametric independence test using permutation entropy," Journal of Econometrics, Elsevier, vol. 144(1), pages 139-155, May.
    26. De Vita, Glauco & Trachanas, Emmanouil & Luo, Yun, 2018. "Revisiting the bi-directional causality between debt and growth: Evidence from linear and nonlinear tests," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 55-74.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Banerjee, Ameet Kumar & Akhtaruzzaman, Md & Dionisio, Andreia & Almeida, Dora & Sensoy, Ahmet, 2022. "Nonlinear nexus between cryptocurrency returns and COVID-19 news sentiment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    2. Gu, Danlei & Lin, Aijing & Lin, Guancen, 2022. "Sleep and cardiac signal processing using improved multivariate partial compensated transfer entropy based on non-uniform embedding," Chaos, Solitons & Fractals, Elsevier, vol. 159(C).
    3. Reneé van Eyden & Rangan Gupta & Christophe André & Xin Sheng, 2022. "The effect of macroeconomic uncertainty on housing returns and volatility: evidence from US state-level data," Chapters, in: Charles K.Y. Leung (ed.), Handbook of Real Estate and Macroeconomics, chapter 8, pages 206-238, Edward Elgar Publishing.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andreas Dietrich, 2012. "Does growth cause structural change, or is it the other way around? A dynamic panel data analysis for seven OECD countries," Empirical Economics, Springer, vol. 43(3), pages 915-944, December.
    2. Erkan Erdil & I. Hakan Yetkiner, 2009. "The Granger-causality between health care expenditure and output: a panel data approach," Applied Economics, Taylor & Francis Journals, vol. 41(4), pages 511-518.
    3. Al-Jahwari, Salim Ahmed Said, 2021. "Does the Twin-Deficits doctrine apply to the Gulf Cooperation Council? A dynamic panel VAR-X model approach," MPRA Paper 111232, University Library of Munich, Germany.
    4. Osman Suliman, 2008. "Do Capital Inflows Cause Currency Black Markets in MENA? Causality Tests for Heterogeneous Panels," Working Papers 381, Economic Research Forum, revised 01 Jan 2008.
    5. Jochen Hartwig, 2008. "Has Health Capital Formation Cured 'Baumol's Disease'? - Panel Granger Causality Evidence for OECD Countries," KOF Working papers 08-206, KOF Swiss Economic Institute, ETH Zurich.
    6. Weichun Chen & Judith A. Clarke & Nilanjana Roy, 2014. "Health and wealth: Short panel Granger causality tests for developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(6), pages 755-784, September.
    7. repec:dau:papers:123456789/6159 is not listed on IDEAS
    8. Steve Loris Gui-Diby & Saskia Mösle, 2017. "Governance and development outcomes: re-assessing the two-way causality," MPDD Working Paper Series WP/17/09, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    9. Erkan Erdil & I. Hakan Yetkiner, 2004. "A Panel Data Approach for Income-Health Causality," Working Papers FNU-47, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2004.
    10. Adolfo Sachsida & Mario Mendonça & Paulo Loureiro & Maria Gutierrez, 2010. "Inequality and criminality revisited: further evidence from Brazil," Empirical Economics, Springer, vol. 39(1), pages 93-109, August.
    11. Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, vol. 29(4), pages 1450-1460.
    12. Hartwig, Jochen, 2010. "Is health capital formation good for long-term economic growth? - Panel Granger-causality evidence for OECD countries," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 314-325, March.
    13. Bakirtas, Tahsin & Akpolat, Ahmet Gokce, 2018. "The relationship between energy consumption, urbanization, and economic growth in new emerging-market countries," Energy, Elsevier, vol. 147(C), pages 110-121.
    14. Töngür, Ünal & Elveren, Adem Yavuz, 2014. "Deunionization and pay inequality in OECD Countries: A panel Granger causality approach," Economic Modelling, Elsevier, vol. 38(C), pages 417-425.
    15. Cândida Ferreira, 2013. "Bank market concentration and bank efficiency in the European Union: a panel Granger causality approach," International Economics and Economic Policy, Springer, vol. 10(3), pages 365-391, September.
    16. Matteo Lanzafame, 2014. "The balance of payments-constrained growth rate and the natural rate of growth: new empirical evidence," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(4), pages 817-838.
    17. Emirmahmutoglu, Furkan & Kose, Nezir, 2011. "Testing for Granger causality in heterogeneous mixed panels," Economic Modelling, Elsevier, vol. 28(3), pages 870-876, May.
    18. Paula Neto & António Brandão & António Cerqueira, 2008. "The Impact of FDI, Cross Border Mergers and Acquisitions and Greenfield Investments on Economic Growth," FEP Working Papers 291, Universidade do Porto, Faculdade de Economia do Porto.
    19. Hayakawa, Kazuhiko, 2016. "Improved GMM estimation of panel VAR models," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 240-264.
    20. Kummer, Sabina, 2015. "Impact of Foreign Direct Investment on Economic Growth: Do Host Country Social and Economic Conditions Matter?," MPRA Paper 107611, University Library of Munich, Germany.
    21. Elya Nabila Abdul Bahri & Abu Hassan Shaari Md Nor & Tamat Sarmidi & Nor Hakimah Haji Mohd Nor, 2019. "The Role of Financial Development in the Relationship Between Foreign Direct Investment and Economic Growth: A Nonlinear Approach," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-32, June.

    More about this item

    Keywords

    Transfer entropy test; Longitudinal dynamic data; Causality test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:649-661. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.