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Testing for Granger (non-)causality in a time-varying coefficient VAR model

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  • Dimitris K. Christopoulos

    (Department of Economic and Regional Development, Panteion University, Athens, Greece)

  • Miguel A. León-Ledesma

    (Department of Economics, Keynes College, University of Kent, Canterbury, UK)

Abstract

In this paper we propose Granger (non-)causality tests based on a VAR model allowing for time-varying coefficients. The functional form of the time-varying coefficients is a logistic smooth transition autoregressive (LSTAR) model using time as the transition variable. The model allows for testing Granger non-causality when the VAR is subject to a smooth break in the coefficients of the Granger causal variables. The proposed test then is applied to the money-output relationship using quarterly US data for the period 1952:2-2002:4. We find that causality from money to output becomes stronger after 1978:4 and the model is shown to have a good out-of-sample forecasting performance for output relative to a linear VAR model. Copyright © 2008 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 27 (2008)
Issue (Month): 4 ()
Pages: 293-303

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Handle: RePEc:jof:jforec:v:27:y:2008:i:4:p:293-303

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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  1. 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.
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Cited by:
  1. Lu, Feng-bin & Hong, Yong-miao & Wang, Shou-yang & Lai, Kin-keung & Liu, John, 2014. "Time-varying Granger causality tests for applications in global crude oil markets," Energy Economics, Elsevier, vol. 42(C), pages 289-298.
  2. Matthieu Droumaguet & Tomasz Wozniak, 2012. "Bayesian Testing of Granger Causality in Markov-Switching VARs," Economics Working Papers ECO2012/06, European University Institute.
  3. repec:wyi:journl:002202 is not listed on IDEAS

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