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Testing for Granger non-causality in heterogeneous panels

Author

Listed:
  • Dumitrescu, Elena-Ivona
  • Hurlin, Christophe

Abstract

This paper proposes a very simple test of Granger (1969) non-causality for heterogeneous panel data models. Our test statistic is based on the individual Wald statistics of Granger non causality averaged across the cross-section units. First, this statistic is shown to converge sequentially to a standard normal distribution. Second, the semi-asymptotic distribution of the average statistic is characterized for a fixed T sample. A standardized statistic based on an approximation of the moments of Wald statistics is hence proposed. Third, Monte Carlo experiments show that our standardized panel statistics have very good small sample properties, even in the presence of cross-sectional dependence.

Suggested Citation

  • Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, vol. 29(4), pages 1450-1460.
  • Handle: RePEc:eee:ecmode:v:29:y:2012:i:4:p:1450-1460
    DOI: 10.1016/j.econmod.2012.02.014
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    References listed on IDEAS

    as
    1. Christophe Hurlin, 2005. "Un test simple de l'hypothèse de non-causalité dans un modèle de panel hétérogène," Revue économique, Presses de Sciences-Po, vol. 56(3), pages 799-809.
    2. Granger, C. W. J., 1980. "Testing for causality : A personal viewpoint," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 329-352, May.
    3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    4. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-429, May.
    5. Granger, Clive W. J., 2003. "Some aspects of causal relationships," Journal of Econometrics, Elsevier, vol. 112(1), pages 69-71, January.
    6. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    7. Diana Weinhold, 1996. "Tests de causalité sur données de panel : une application à l'étude de la causalité entre l'investissement et la croissance," Économie et Prévision, Programme National Persée, vol. 126(5), pages 163-175.
    8. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    9. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
    10. repec:adr:anecst:y:1986:i:4:p:05 is not listed on IDEAS
    11. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    12. Magnus, J.R., 1986. "The exact moments of a ratio of quadratic forms in normal variables," Other publications TiSEM c6725407-ac3c-44fd-b6d1-5, Tilburg University, School of Economics and Management.
    13. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
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    More about this item

    Keywords

    Granger non-causality; Panel data; Wald test;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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