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An Out of Sample Test for Granger Causality

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Author Info
Norman R. Swanson (Texas A & M University)

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Abstract

Granger (1980) summarizes his personal viewpoint on testing for causality, and outlines what he considers to be a useful operational version of his original definition of causality (Granger (1969)), which he notes was partially alluded to in Wiener (1958). This operational version is based on a comparison of the 1-step ahead predictive ability of competing models. However, Granger concludes his discussion by noting that it is common practice to test for Granger causality using in-sample F-tests. The practice of using in-sample type Granger causality tests continues to be prevalent. In this paper we develop simple (nonlinear) out-of-sample predictive ability tests of the Granger non-causality null hypothesis. In addition, Monte Carlo experiments are used to investigate the finite sample properites of the test. An empirical illustration shows that the choice of in-sample versus out-of-sample Granger causality tests can crucially affect the conclusions about the predictive content of money for output.

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Publisher Info
Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0362.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0362

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bierens, Herman J, 1990. "A Consistent Conditional Moment Test of Functional Form," Econometrica, Econometric Society, vol. 58(6), pages 1443-58, November. [Downloadable!] (restricted)
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  2. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-67, July. [Downloadable!] (restricted)
  3. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
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  4. Clark, Todd E. & McCracken, Michael W., 2001. "Tests of equal forecast accuracy and encompassing for nested models," Journal of Econometrics, Elsevier, vol. 105(1), pages 85-110, November. [Downloadable!] (restricted)
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  5. Lawrence J. Christiano & Lars Ljungqvist, 1987. "Money does Granger-cause output in the bivariate output-money relation," Staff Report 108, Federal Reserve Bank of Minneapolis. [Downloadable!]
  6. Christoffersen, Peter F. & Diebold, Francis X., 1997. "Optimal Prediction Under Asymmetric Loss," Econometric Theory, Cambridge University Press, vol. 13(06), pages 808-817, December. [Downloadable!]
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  7. repec:cup:etheor:v:13:y:1997:i:6:p:808-17 is not listed on IDEAS
  8. Christiano, Lawrence J. & Ljungqvist, Lars, 1988. "Money does Granger-cause output in the bivariate money-output relation," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 217-235, September. [Downloadable!] (restricted)
  9. Ashley, Richard, 1998. "A new technique for postsample model selection and validation," Journal of Economic Dynamics and Control, Elsevier, vol. 22(5), pages 647-665, May. [Downloadable!] (restricted)
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