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Efficient Tests of Long-Run Causation in Trivariate VAR Processes with a Rolling Window Study of the Money-Income Relationship

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Author Info

  • Jonathan B. Hill

    (Florida International University)

Abstract

This paper develops a simple sequential multiple horizon non-causation test strategy for trivariate VAR models (with one auxiliary variable). We apply the test strategy to a rolling window study of money supply and real income, with the price of oil, the unemployment rate and the spread between the Treasury bill and commercial paper rates as auxiliary processes. Ours is the first study to control simultaneously for common stochastic trends, sensitivity of test statistics to the chosen sample period, null hypothesis over-rejection, sequential test size bounds, and the possibility of causal delays. Evidence suggests highly significant direct or indirect causality from M1 to real income, in particular through the unemployment rate and M2 once we control for cointegration.

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File URL: http://128.118.178.162/eps/mac/papers/0407/0407013.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0407013.

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Length: 51 pages
Date of creation: 15 Jul 2004
Date of revision: 17 May 2005
Handle: RePEc:wpa:wuwpma:0407013

Note: Type of Document - pdf; pages: 51
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Web page: http://128.118.178.162

Related research

Keywords: multiple horizon causality; Wald tests; parametric bootstrap; money-income causality; rolling windows; cointegration;

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References

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Citations

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Cited by:
  1. Majid M. Al-Sadoon, 2013. "Geometric and long run aspects of Granger causality," Economics Working Papers 1356, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Serhan Cevik & Katerina Teksoz, 2013. "Hitchhiker’s Guide to Inflation in Libya," IMF Working Papers 13/78, International Monetary Fund.
  3. Laih, Yih-Wenn, 2014. "Measuring rank correlation coefficients between financial time series: A GARCH-copula based sequence alignment algorithm," European Journal of Operational Research, Elsevier, vol. 232(2), pages 375-382.
  4. Paraskevi Salamaliki & Ioannis Venetis & Nicholas Giannakopoulos, 2013. "The causal relationship between female labor supply and fertility in the USA: updated evidence via a time series multi-horizon approach," Journal of Population Economics, Springer, vol. 26(1), pages 109-145, January.
  5. Al-Sadoon, M.M., 2009. "Causality Along Subspaces: Theory," Cambridge Working Papers in Economics 0919, Faculty of Economics, University of Cambridge.
  6. Salamaliki, Paraskevi K. & Venetis, Ioannis A., 2013. "Energy consumption and real GDP in G-7: Multi-horizon causality testing in the presence of capital stock," Energy Economics, Elsevier, vol. 39(C), pages 108-121.
  7. Erik Alencar de Figueiredo & Claudio Shikida & Ari Francisco Araújo Jr, 2013. "Monetary Policy, Output and Prices- Peláezs Contributions and a Sequential Multiple-horizon Non-causation Test for the period 1861-1970," Série Textos para Discussão (Working Papers) 20, Programa de Pós-Graduação em Economia - PPGE, Universidade Federal da Paraíba.
  8. Jonathan B. Hill, 2005. "Causation Delays and Causal Neutralization up to Three Steps Ahead: The Money-Output Relationship Revisited," Econometrics 0503016, EconWPA, revised 23 Mar 2005.
  9. Jonathan B. Hill, 2004. "Causation Delays and Causal Neutralization: The Money-Output Relationship Revisited," Working Papers 0403, Florida International University, Department of Economics.

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