A consistent nonparametric test for nonlinear causality—Specification in time series regression
AbstractSince the pioneering work by Granger (1969), many authors have proposed tests of causality between economic time series. Most of them are concerned only with “linear causality in mean”, or if a series linearly affects the (conditional) mean of the other series. It is no doubt of primary interest, but dependence between series may be nonlinear, and/or not only through the conditional mean. Indeed conditional heteroskedastic models are widely studied recently. The purpose of this paper is to propose a nonparametric test for possibly nonlinear causality. Taking into account that dependence in higher order moments are becoming an important issue especially in financial time series, we also consider a test for causality up to the Kth conditional moment. Statistically, we can also view this test as a nonparametric omitted variable test in time series regression. A desirable property of the test is that it has nontrivial power against T1/2-local alternatives, where T is the sample size. Also, we can form a test statistic accordingly if we have some knowledge on the alternative hypothesis. Furthermore, we show that the test statistic includes most of the omitted variable test statistics as special cases asymptotically. The null asymptotic distribution is not normal, but we can easily calculate the critical regions by simulation. Monte Carlo experiments show that the proposed test has good size and power properties.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Econometrics.
Volume (Year): 165 (2011)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/jeconom
Nonlinear causality; Causality up to Kth moment; Nonparametric test; Omitted variables test; Local alternatives;
Find related papers by 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
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jesús Gonzalo & Abderrahim Taamouti, 2011.
"The reaction of stock market returns to anticipated unemployment,"
Economics Working Papers
we1145, Universidad Carlos III, Departamento de Economía.
- Jesús Gonzalo & AbderrahimTaamouti, 2012. "The reaction of stock market returns to anticipated unemployment," Economics Working Papers we1237, Universidad Carlos III, Departamento de Economía.
- Guo, Shaojun & Ling, Shiqing & Zhu, Ke, 2013. "Factor double autoregressive models with application to simultaneous causality testing," MPRA Paper 51570, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.