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A simple investigation of the Granger-causality test in integrated-cointegrated VAR systems

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  • Ghazi Shukur
  • Panagiotis Mantalos

Abstract

The size and power of various generalization tests for the Granger-causality in integrated-cointegrated VAR systems are considered. By using Monte Carlo methods, properties of eight versions of the test are studied in two different forms, the standard form and the modified form by Dolado & Lutkepohl (1996) in a study confined to properties of the Wald test only. In their study as well as in ours, both the standard and the modified Wald tests are shown to perform badly especially in small samples. We find, however, that the corrected LR tests exhibit correct size even in small samples. The power of the test is higher when the true VAR(2) model is estimated, and the modified test loses information by estimating the extra coefficients. The same is true when considering the power results in the VAR(3) model, and the power of the tests is somewhat lower than those in the VAR(2).

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Applied Statistics.

Volume (Year): 27 (2000)
Issue (Month): 8 ()
Pages: 1021-1031

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Handle: RePEc:taf:japsta:v:27:y:2000:i:8:p:1021-1031

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  1. Park, Joon Y. & Phillips, Peter C.B., 1989. "Statistical Inference in Regressions with Integrated Processes: Part 2," Econometric Theory, Cambridge University Press, vol. 5(01), pages 95-131, April.
  2. Hiro Y. Toda & Peter C.B. Phillips, 1991. "Vector Autoregression and Causality," Cowles Foundation Discussion Papers 977, Cowles Foundation for Research in Economics, Yale University.
  3. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  4. Zapata, Hector O & Rambaldi, Alicia N, 1997. "Monte Carlo Evidence on Cointegration and Causation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(2), pages 285-98, May.
  5. Juan J. DOLADO & Helmut LÜTKEPOHL, 1994. "Making Wald Tests Work for Cointegrated Var Systems," SFB 373 Discussion Papers 1994,44, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  6. Peter C.B. Phillips, 1993. "Fully Modified Least Squares and Vector Autoregression," Cowles Foundation Discussion Papers 1047, Cowles Foundation for Research in Economics, Yale University.
  7. Toda, Hiro Y. & Phillips, Peter C. B., 1993. "The spurious effect of unit roots on vector autoregressions : An analytical study," Journal of Econometrics, Elsevier, vol. 59(3), pages 229-255, October.
  8. repec:wop:humbsf:1998-101 is not listed on IDEAS
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Citations

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Cited by:
  1. Xiao-lin Li & Mehmet Balcilar & Rangan Gupta & Tsangyao Chang, 2013. "The Causal Relationship between Economic Policy Uncertainty and Stock Returns in China and India: Evidence from a Bootstrap Rolling-Window Approach," Working Papers 201345, University of Pretoria, Department of Economics.
  2. Mehmet Balcilar & Zeynel Ozdemir, 2013. "The export-output growth nexus in Japan: a bootstrap rolling window approach," Empirical Economics, Springer, vol. 44(2), pages 639-660, April.
  3. Balcilar, Mehmet & Ozdemir, Zeynel Abidin & Arslanturk, Yalcin, 2010. "Economic growth and energy consumption causal nexus viewed through a bootstrap rolling window," Energy Economics, Elsevier, vol. 32(6), pages 1398-1410, November.
  4. Tang, Chor Foon, 2010. "Revisiting the health-income nexus in Malaysia: ARDL cointegration and Rao's F-test for causality," MPRA Paper 27287, University Library of Munich, Germany.
  5. Mehmet Balcilar & Rangan Gupta & Stephen M. Miller, 2013. "Housing and the Great Depression," Working Papers 201308, University of Pretoria, Department of Economics.
  6. Wendy Nyakabawo & Stephen M. Miller & Mehmet Balcilar & Sonali Das & Rangan Gupta, 2013. "Temporal Causality between House Prices and Output in the U.S.: A Bootstrap Rolling-Window Approach," Working papers 2013-14, University of Connecticut, Department of Economics.
  7. Goodness C. Aye & Mehmet Balcilar & Adel Bosch & Rangan Gupta, 2013. "Housing and the Business Cycle in South Africa," Working Papers 201323, University of Pretoria, Department of Economics.
  8. Chor Foon Tang & Soo Y. Chua, 2012. "The savings-growth nexus for the Malaysian economy: a view through rolling sub-samples," Applied Economics, Taylor & Francis Journals, vol. 44(32), pages 4173-4185, November.
  9. Abdulnasser Hatemi-J & Ghazi Shukur, 2002. "Multivariate-based causality tests of twin deficits in the US," Journal of Applied Statistics, Taylor & Francis Journals, vol. 29(6), pages 817-824.
  10. Hatemi-J, Abdulnasser, 2002. "Export performance and economic growth nexus in Japan: a bootstrap approach," Japan and the World Economy, Elsevier, vol. 14(1), pages 25-33, January.
  11. Goodness C. Aye & Mehmet Balcilar & John P. Dunne & Rangan Gupta & Renee van Eyden, 2013. "Military Expenditure, Economic Growth and Structural Instability: A Case Study of South Africa," Working Papers 201344, University of Pretoria, Department of Economics.
  12. Tang, Chor Foon & Shahbaz, Muhammad, 2013. "Sectoral analysis of the causal relationship between electricity consumption and real output in Pakistan," Energy Policy, Elsevier, vol. 60(C), pages 885-891.
  13. Almasri, Abdullah & Månsson, Kristofer & Sjölander, Pär & Shukur, Ghazi, 2012. "Testing for Panel Unit Roots in the Presence of an Unknown Structural Break and Cross-Sectional Dependency," HUI Working Papers 63, HUI Research.

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