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Asymmetric Panel Causality Tests with an Application to the Impact of Fiscal Policy on Economic Performance in Scandinavia

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  • Hatemi-J, Abdulnasser

Abstract

Tests for conducting asymmetric Granger causality within a panel system are introduced in this paper. It is shown how the cumulative sums of negative and positive shocks can be constructed to investigate whether the potential causal effects of these shocks are asymmetrical or not within a panel system. These tests can be based on asymptotic or bootstrap distributions. The tests are applied to assess the impact of contractionary as well as expansionary fiscal policy on the economic performance of the three Scandinavian countries. The results show that allowing for asymmetry in the panel causality testing has important repercussions for the underlying causal inference.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 55527.

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Date of creation: Nov 2011
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Handle: RePEc:pra:mprapa:55527

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Keywords: Asymmetric Causality; Panel; Fiscal Policy; Scandinavia;

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  1. Stiglitz, Joseph E, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(2), pages 219-55, April.
  2. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
  3. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  4. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 424-38, July.
  5. Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1450-1460.
  6. Joakim Westerlund, 2007. "Testing for Error Correction in Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 69(6), pages 709-748, December.
  7. Abdulnasser Hatemi-J, 2012. "Asymmetric causality tests with an application," Empirical Economics, Springer, Springer, vol. 43(1), pages 447-456, August.
  8. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1371-95, November.
  9. Granger, C. W. J., 1988. "Causality, cointegration, and control," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 551-559.
  10. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 87(3), pages 355-74, August.
  11. R. Scott Hacker & Abdulnasser Hatemi-J, 2006. "Tests for causality between integrated variables using asymptotic and bootstrap distributions: theory and application," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(13), pages 1489-1500.
  12. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, Elsevier, vol. 66(1-2), pages 225-250.
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