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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)

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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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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://129.3.20.41

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

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation

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Full references

Cited by:
(explanations, 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. Jonathan B. Hill, 2004. "Causation Delays and Causal Neutralization: The Money-Output Relationship Revisited," Working Papers 0403, Florida International University, Department of Economics. [Downloadable!]
  2. Al-Sadoon, M.M., 2009. "Causality Along Subspaces: Theory," Cambridge Working Papers in Economics 0919, Faculty of Economics, University of Cambridge. [Downloadable!]
  3. 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. [Downloadable!]
  4. Deborah Gefang, 2008. "Revisiting money-output causality from a Bayesian logistic smooth transition VECM perspective," Discussion Papers in Economics 08/5, Department of Economics, University of Leicester. [Downloadable!]
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