Markov switching causality and the money-output relationship
AbstractThe causal link between monetary variables and output is one of the most studied issues in macroeconomics. One puzzle from this literature is that the results of causality tests appear to be sensitive with respect to the sample period that one considers. As a way of overcoming this difficulty, we propose a method for analysing Granger causality which is based on a vector autoregressive model with time-varying parameters. We model parameter time-variation so as to reflect changes in Granger causality, and assume that these changes are stochastic and governed by an unobservable Markov chain. When applied to US data, our methodology allows us to reconcile previous puzzling differences in the outcome of conventional tests for money-output causality. Copyright © 2005 John Wiley & Sons, Ltd.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.
Volume (Year): 20 (2005)
Issue (Month): 5 ()
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Web page: http://www.interscience.wiley.com/jpages/0883-7252/
Other versions of this item:
- Psaradakis, Zacharias & Ravn, Morten O. & Sola, Martin, 2003. "Markov Switching Causality and the Money-Output Relationship," CEPR Discussion Papers 3803, C.E.P.R. Discussion Papers.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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