Causality Tests, Interdependence and Model Selection: Aplication to OECD countries 1960-97

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Causality Tests, Interdependence and Model Selection: Aplication to OECD countries 1960-97

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Guisan, M.Carmen ()

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M. Carmen Guisan

Abstract

This paper compares several methodologies for analysing unidirectional and bi-directional causality between Consumption and GDP in 25 OECD countries during the period 1960-95. For analysing unilateral causality a comparison is made between cointegration tests and joint regression on alternative explanatory variables, with 100% of correct results in the case of joint regression and lower percentages of success for cointegration approach. Bilateral causality is analysed comparing Granger´s test, a modified version of Granger´s test here suggested, TSLS, Hausman´s causality test and other approaches. The main conclusion is that the modified version of Granger´s test performs rather well and that Hausman´s test is very often useful for reinforcing the conclusions of multiple equations models with contemporaneous interdependence. Regarding the bilateral relationship between Consumption and GDP we conclude that there is a moderate degree of contemporaneous relation, with a high degree of dependence of Private Consumption on GDP and a lower dependence in the case of the reverse relation, because GDP is more dependent on supply side conditions than on demand side. This result is relevant for economic policies in less developed countries where very often emphasis is made more in the reverse relations than in the main ones.

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Paper provided by University of Santiago de Compostela. Faculty of Economics and Business. Econometrics. in its series Economic Development with number 63.

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Length: 21 pages
Date of creation: 2003
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Handle: RePEc:eaa:ecodev:63

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Find related papers by JEL classification:
C5 - Mathematical and Quantitative Methods - - Econometric Modeling
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

This paper has been announced in the following NEP Reports:

NEP-ALL-2003-02-24 (All new papers)

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Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
Nakamura, Alice & Nakamura, Masao, 1981. "On the Relationships among Several Specification Error Tests Presented by Durbin, Wu, and Hausman," Econometrica, Econometric Society, vol. 49(6), pages 1583-88, November. [Downloadable!] (restricted)

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