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Nonparametric Test for Causality with Long-Range Dependence - (Now published in Econometrica, 68, (2000) pp.1465-1490

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  • Javier Hidalgo
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    Abstract

    This paper introduces a nonparametric Granger-causality test for covariance stationary linear processes under, possibly, the presence of long-range dependence. We show that the test is consistent and has power against contiguous alternatives converging to the parametric rate T-½. Since the test is based on estimates of the parameters of the representation of a VAR model as a, possibly, two-sided infinite distributed lag model, we first show that a modification of Hannan's (1963, 1967) estimator is root-T consistent and asymptotically normal for the coefficients of such a representation. When the data is long-range dependent this method of estimation becomes more attractive than Least Squares, since the latter can be neither root-T consistent nor asymptotically normal as is the case with short-range dependent data.

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    File URL: http://sticerd.lse.ac.uk/dps/em/em387.pdf
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    Bibliographic Info

    Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Econometrics Paper Series with number /2000/387.

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    Date of creation: Apr 2000
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    Handle: RePEc:cep:stiecm:/2000/387

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    Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

    Related research

    Keywords: Causality; long-range dependence; spectral analysis; distributed lag model; consistent test;

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    1. Hannan, E J & Terrell, R D, 1973. "Multiple Equation Systems with Stationary Errors," Econometrica, Econometric Society, vol. 41(2), pages 299-320, March.
    2. Toda, Hiro Y & Phillips, Peter C B, 1993. "Vector Autoregressions and Causality," Econometrica, Econometric Society, vol. 61(6), pages 1367-93, November.
    3. Robinson, P M, 1991. "Automatic Frequency Domain Inference on Semiparametric and Nonparametric Models," Econometrica, Econometric Society, vol. 59(5), pages 1329-63, September.
    4. repec:cup:etheor:v:12:y:1996:i:1:p:61-87 is not listed on IDEAS
    5. Lütkepohl, Helmut & POSKITT, D.S., 1996. "Testing for Causation Using Infinite Order Vector Autoregressive Processes," Econometric Theory, Cambridge University Press, vol. 12(01), pages 61-87, March.
    6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
    7. 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.
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