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Estimating Long Memory Causality Relationships by a Wavelet Method

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  • Li, Yushu

    ()
    (Department of Economics, Lund University)

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Abstract

The traditional causality relationship proposed by Granger (1969) assumes the relationships between variables are short range dependent with the same integrated order. Chen (2006) proposed a bi-variate model which can catch the long-range dependent among the two variables and the series do not need to be fractionally co-integrated. A long memory fractional transfer function is introduced to catch the long-range dependent in this model and a pseudo spectrum based method is proposed to estimate the long memory parameter in the bi-variate causality model. In recent years, a wavelet domain-based method has gained popularity in estimations of long memory parameter in unit series. No extension to bi-series or multi-series has been made and this paper aims to fill this gap. We will construct an estimator for the long memory parameter in the bi-variable causality model in the wavelet domain. The theoretical background is derived and Monte Carlo simulation is used to investigate the performance of the estimator.

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File URL: http://project.nek.lu.se/publications/workpap/papers/WP12_15.pdf
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Bibliographic Info

Paper provided by Lund University, Department of Economics in its series Working Papers with number 2012:15.

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Length: 13 pages
Date of creation: 21 May 2012
Date of revision:
Handle: RePEc:hhs:lunewp:2012_015

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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
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Keywords: Granger causality; long memory; Monte Carlo simulation; wavelet domain;

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References

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  1. Mark J. Jensen, 1997. "Using Wavelets to Obtain a Consistent Ordinary Least Squares Estimator of the Long Memory Parameter," Econometrics 9710002, EconWPA.
  2. Thornton, Daniel L & Batten, Dallas S, 1985. "Lag-Length Selection and Tests of Granger Causality between Money and Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 164-78, May.
  3. Javier Hidalgo, 2000. "Nonparametric Test for Causality with Long-Range Dependence," Econometrica, Econometric Society, vol. 68(6), pages 1465-1490, November.
  4. Wen-Den Chen, 2006. "Estimating the long memory granger causality effect with a spectrum estimator," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(3), pages 193-200.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Some Recent Papers on Granger Causality
    by Dave Giles in Econometrics Beat: Dave Giles' Blog on 2012-12-02 18:30:00

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