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Granger-Causality in the presence of structural breaks

Author

Listed:
  • Daniel Ventosa-Santaulària

    (Universidad de Guanajuato)

  • José Eduardo Vera-Valdés

    (Universidad de Guanajuato)

Abstract

The concept of Granger-Causality (GC) is widely used to draw inference concerning causality in applied economics. Stationary series are the term of reference used in GC testing, which is generally studied by means of a standard Dickey-Fuller test. We prove that, when the Data Generating Process (DGP) of the variables is either Broken-Trend Stationary (BTS) or Broken-Mean Stationary (BMS), correct inference can not be drawn from a standard Granger-Causality test and may identify inexistent causal relationships, even if the former variables are differenced. Asymptotic and finite-sample evidence in this sense is provided.

Suggested Citation

  • Daniel Ventosa-Santaulària & José Eduardo Vera-Valdés, 2008. "Granger-Causality in the presence of structural breaks," Economics Bulletin, AccessEcon, vol. 3(61), pages 1-14.
    • Handle: RePEc:ebl:ecbull:eb-08c20013
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    References listed on IDEAS

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    Cited by:

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    2. Nazlioglu, Saban & Gormus, N. Alper & Soytas, Uğur, 2016. "Oil prices and real estate investment trusts (REITs): Gradual-shift causality and volatility transmission analysis," Energy Economics, Elsevier, vol. 60(C), pages 168-175.
    3. Baruník, Jozef & Kočenda, Evžen & Vácha, Lukáš, 2016. "Gold, oil, and stocks: Dynamic correlations," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 186-201.
    4. Felipe J. Fonseca & Daniel Ventosa-Santaulària, 2011. "Revenue Elasticity of the Main federal Taxes in Mexico," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 48(1), pages 89-111.
    5. Nazlioglu, Saban & Gupta, Rangan & Bouri, Elie, 2020. "Movements in international bond markets: The role of oil prices," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 47-58.
    6. Rodríguez-Caballero, Carlos Vladimir & Ventosa-Santaulària, Daniel, 2017. "Energy-growth long-term relationship under structural breaks. Evidence from Canada, 17 Latin American economies and the USA," Energy Economics, Elsevier, vol. 61(C), pages 121-134.
    7. Nazlioglu, Saban & Gupta, Rangan & Gormus, Alper & Soytas, Ugur, 2020. "Price and volatility linkages between international REITs and oil markets," Energy Economics, Elsevier, vol. 88(C).
    8. Durusu-Ciftci, Dilek & Soytas, Ugur & Nazlioglu, Saban, 2020. "Financial development and energy consumption in emerging markets: Smooth structural shifts and causal linkages," Energy Economics, Elsevier, vol. 87(C).

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