IDEAS home Printed from https://ideas.repec.org/a/eee/ecosta/v9y2019icp42-61.html
   My bibliography  Save this article

Testing subspace Granger causality

Author

Listed:
  • Al-Sadoon, Majid M.

Abstract

The methodology of multivariate Granger non-causality testing at various horizons is extended to allow for inference on its directionality. Empirical manifestations of these subspaces are presented and useful interpretations for them are provided. Simple vector autoregressive models are used to estimate these subspaces and to find their dimensions. The methodology is illustrated by an application to empirical monetary policy, where a conditional form of Okun’s law is demonstrated as well as a statistical monetary policy reaction function to oil price changes.

Suggested Citation

  • Al-Sadoon, Majid M., 2019. "Testing subspace Granger causality," Econometrics and Statistics, Elsevier, vol. 9(C), pages 42-61.
    • Handle: RePEc:eee:ecosta:v:9:y:2019:i:c:p:42-61
    DOI: 10.1016/j.ecosta.2017.08.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2452306217300709
    Download Restriction: Full text for ScienceDirect subscribers only. Contains open access articles
    File URL: https://libkey.io/10.1016/j.ecosta.2017.08.003?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 look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christina D. Romer & David H. Romer, 2004. "A New Measure of Monetary Shocks: Derivation and Implications," American Economic Review, American Economic Association, vol. 94(4), pages 1055-1084, September.
    2. Toda, Hiro Y & Phillips, Peter C B, 1993. "Vector Autoregressions and Causality," Econometrica, Econometric Society, vol. 61(6), pages 1367-1393, November.
    3. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
    4. Halbert White & Xun Lu, 2010. "Granger Causality and Dynamic Structural Systems," Journal of Financial Econometrics, Oxford University Press, vol. 8(2), pages 193-243, spring.
    5. Al-Sadoon, Majid M., 2018. "The Linear Systems Approach To Linear Rational Expectations Models," Econometric Theory, Cambridge University Press, vol. 34(3), pages 628-658, June.
    6. Dufour, Jean-Marie & Pelletier, Denis & Renault, Eric, 2006. "Short run and long run causality in time series: inference," Journal of Econometrics, Elsevier, vol. 132(2), pages 337-362, June.
    7. DUFOUR, Jean-Marie & JOUINI, Tarek, 2005. "Finite-Sample Simulation-Based Inference in VAR Models with Applications to Order Selection and Causality Testing," Cahiers de recherche 2005-12, Universite de Montreal, Departement de sciences economiques.
    8. Al-Sadoon, Majid M., 2017. "A unifying theory of tests of rank," Journal of Econometrics, Elsevier, vol. 199(1), pages 49-62.
    9. Halbert White & Karim Chalak & Xun Lu, 2010. "Linking Granger Causality and the Pearl Causal Model with Settable Systems," Boston College Working Papers in Economics 744, Boston College Department of Economics.
    10. Marek Jarociński & Bartosz Maćkowiak, 2017. "Granger Causal Priority and Choice of Variables in Vector Autoregressions," The Review of Economics and Statistics, MIT Press, vol. 99(2), pages 319-329, May.
    11. Dufour, Jean-Marie & Khalaf, Lynda, 2002. "Simulation based finite and large sample tests in multivariate regressions," Journal of Econometrics, Elsevier, vol. 111(2), pages 303-322, December.
    12. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2012. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199650460, Decembrie.
    13. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-787, October.
    14. Taku Yamamoto & Eiji Kurozumi, 2006. "Tests for Long‐Run Granger Non‐Causality in Cointegrated Systems," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(5), pages 703-723, September.
    15. Hoover,Kevin D., 2001. "Causality in Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521002882.
    16. Dufour, Jean-Marie, 2006. "Monte Carlo tests with nuisance parameters: A general approach to finite-sample inference and nonstandard asymptotics," Journal of Econometrics, Elsevier, vol. 133(2), pages 443-477, August.
    17. Bruneau, Catherine & Jondeau, Eric, 1999. "Long-Run Causality, with an Application to International Links between Long-Term Interest Rates," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 545-568, November.
    18. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    19. Hsiao, Cheng, 1982. "Autoregressive modeling and causal ordering of economic variables," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 243-259, November.
    20. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 369-380, October.
    21. Nicholas M. Kiefer & Timothy J. Vogelsang & Helle Bunzel, 2000. "Simple Robust Testing of Regression Hypotheses," Econometrica, Econometric Society, vol. 68(3), pages 695-714, May.
    22. Nicholas M. Kiefer & Timothy J. Vogelsang, 2002. "Heteroskedasticity-Autocorrelation Robust Standard Errors Using The Bartlett Kernel Without Truncation," Econometrica, Econometric Society, vol. 70(5), pages 2093-2095, September.
    23. Al-Sadoon, Majid M., 2014. "Geometric and long run aspects of Granger causality," Journal of Econometrics, Elsevier, vol. 178(P3), pages 558-568.
    24. Dufour, Jean-Marie & Taamouti, Abderrahim, 2010. "Short and long run causality measures: Theory and inference," Journal of Econometrics, Elsevier, vol. 154(1), pages 42-58, January.
    25. Robin, Jean-Marc & Smith, Richard J., 2000. "Tests Of Rank," Econometric Theory, Cambridge University Press, vol. 16(2), pages 151-175, April.
    26. Jean-Marie Dufour & Eric Renault, 1998. "Short Run and Long Run Causality in Time Series: Theory," Econometrica, Econometric Society, vol. 66(5), pages 1099-1126, September.
    27. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    28. Majid M. Al-Sadoon, 2014. "A general theory of rank testing," Economics Working Papers 1411, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2015.
    29. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-395, October.
    30. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    31. Cragg, John G. & Donald, Stephen G., 1997. "Inferring the rank of a matrix," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 223-250.
    32. White, Halbert & Pettenuzzo, Davide, 2014. "Granger causality, exogeneity, cointegration, and economic policy analysis," Journal of Econometrics, Elsevier, vol. 178(P2), pages 316-330.
    33. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
    34. Kiefer, Nicholas M. & Vogelsang, Timothy J., 2005. "A New Asymptotic Theory For Heteroskedasticity-Autocorrelation Robust Tests," Econometric Theory, Cambridge University Press, vol. 21(6), pages 1130-1164, December.
    35. Eichler, Michael, 2007. "Granger causality and path diagrams for multivariate time series," Journal of Econometrics, Elsevier, vol. 137(2), pages 334-353, April.
    36. Geweke, John, 1984. "Inference and causality in economic time series models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 19, pages 1101-1144, Elsevier.
    37. Kiefer, Nicholas M. & Vogelsang, Timothy J., 2002. "Heteroskedasticity-Autocorrelation Robust Testing Using Bandwidth Equal To Sample Size," Econometric Theory, Cambridge University Press, vol. 18(6), pages 1350-1366, December.
    38. Jean-Marc Robin & Richard Smith, 2000. "Tests of rank," Post-Print hal-03587662, HAL.
    39. 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.
    40. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
    41. Jean-Marie Dufour & David Tessier, 2006. "Short-Run and Long-Run Causality between Monetary Policy Variables and Stock Prices," Staff Working Papers 06-39, Bank of Canada.
    42. Lutkepohl, Helmut & Burda, Maike M., 1997. "Modified Wald tests under nonregular conditions," Journal of Econometrics, Elsevier, vol. 78(2), pages 315-332, June.
    43. Duplinskiy, A., 2014. "Is regularization necessary? A Wald-type test under non-regular conditions," Research Memorandum 025, Maastricht University, Graduate School of Business and Economics (GSBE).
    44. Camba-Mendez, Gonzalo, et al, 2003. "Tests of Rank in Reduced Rank Regression Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 145-155, January.
    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. Al-Sadoon, Majid M., 2017. "A unifying theory of tests of rank," Journal of Econometrics, Elsevier, vol. 199(1), pages 49-62.
    2. Junker, Robert R. & Griessenberger, Florian & Trutschnig, Wolfgang, 2021. "Estimating scale-invariant directed dependence of bivariate distributions," Computational Statistics & Data Analysis, Elsevier, vol. 153(C).

    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. Al-Sadoon, Majid M., 2014. "Geometric and long run aspects of Granger causality," Journal of Econometrics, Elsevier, vol. 178(P3), pages 558-568.
    2. Dufour, Jean-Marie & Pelletier, Denis & Renault, Eric, 2006. "Short run and long run causality in time series: inference," Journal of Econometrics, Elsevier, vol. 132(2), pages 337-362, June.
    3. Al-Sadoon, Majid M., 2017. "A unifying theory of tests of rank," Journal of Econometrics, Elsevier, vol. 199(1), pages 49-62.
    4. Majid M. Al-Sadoon, 2014. "A general theory of rank testing," Economics Working Papers 1411, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2015.
    5. Apergis, Nicholas & Bouras, Christos & Christou, Christina & Hassapis, Christis, 2018. "Multi-horizon wealth effects across the G7 economies," Economic Modelling, Elsevier, vol. 72(C), pages 165-176.
    6. Jonathan B. Hill, 2007. "Efficient tests of long-run causation in trivariate VAR processes with a rolling window study of the money-income relationship," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(4), pages 747-765.
    7. DUFOUR, Jean-Marie & JOUINI, Tarek, 2005. "Finite-Sample Simulation-Based Inference in VAR Models with Applications to Order Selection and Causality Testing," Cahiers de recherche 2005-12, Universite de Montreal, Departement de sciences economiques.
    8. Qihui Chen & Zheng Fang, 2018. "Improved Inference on the Rank of a Matrix," Papers 1812.02337, arXiv.org, revised Mar 2019.
    9. Dufour, Jean-Marie & Jouini, Tarek, 2006. "Finite-sample simulation-based inference in VAR models with application to Granger causality testing," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 229-254.
    10. Woźniak, Tomasz, 2015. "Testing causality between two vectors in multivariate GARCH models," International Journal of Forecasting, Elsevier, vol. 31(3), pages 876-894.
    11. Yener Coskun & Christos Bouras & Rangan Gupta & Mark E. Wohar, 2021. "Multi-Horizon Financial and Housing Wealth Effects across the U.S. States," Sustainability, MDPI, vol. 13(3), pages 1-20, January.
    12. François-Éric Racicota & David Tessierc, 2023. "On the relationship between Jorda?s IRF local projection and Dufour et al.?s robust (p,h)-autoregression multihorizon causality: a note," Working Papers 2023-001, Department of Research, Ipag Business School.
    13. Ralf Brüggemann & Christian Kascha, 2017. "Directed Graphs and Variable Selection in Large Vector Autoregressive Models," Working Paper Series of the Department of Economics, University of Konstanz 2017-06, Department of Economics, University of Konstanz.
    14. Jonathan B. Hill, 2005. "Causation Delays and Causal Neutralization up to Three Steps Ahead: The Money-Output Relationship Revisited," Econometrics 0503016, University Library of Munich, Germany, revised 23 Mar 2005.
    15. Dufour, Jean-Marie & Taamouti, Abderrahim, 2010. "Short and long run causality measures: Theory and inference," Journal of Econometrics, Elsevier, vol. 154(1), pages 42-58, January.
    16. Stephanie-Carolin Grosche, 2014. "What Does Granger Causality Prove? A Critical Examination of the Interpretation of Granger Causality Results on Price Effects of Index Trading in Agricultural Commodity Markets," Journal of Agricultural Economics, Wiley Blackwell, vol. 65(2), pages 279-302, June.
    17. Matthieu Droumaguet & Anders Warne & Tomasz Wozniak, 2015. "Granger Causality and Regime Inference in Bayesian Markov-Switching VARs," Department of Economics - Working Papers Series 1191, The University of Melbourne.
    18. Dominik Bertsche & Ralf Brüggemann & Christian Kascha, 2023. "Directed graphs and variable selection in large vector autoregressive models," Journal of Time Series Analysis, Wiley Blackwell, vol. 44(2), pages 223-246, March.
    19. Kevin D. Hoover, 2020. "The Discovery of Long-Run Causal Order: A Preliminary Investigation," Econometrics, MDPI, vol. 8(3), pages 1-25, August.
    20. Ashesh Rambachan & Neil Shephard, 2019. "Econometric analysis of potential outcomes time series: instruments, shocks, linearity and the causal response function," Papers 1903.01637, arXiv.org, revised Feb 2020.

    More about this item

    Keywords

    Granger causality; VAR model; Rank testing; Okun’s law; Policy trade-offs;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation 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; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    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:ecosta:v:9:y:2019:i:c:p:42-61. 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: https://www.journals.elsevier.com/econometrics-and-statistics .

    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.