IDEAS home Printed from https://ideas.repec.org/a/eee/econom/v169y2012i2p293-300.html
   My bibliography  Save this article

Persistence-robust surplus-lag Granger causality testing

Author

Listed:
  • Bauer, Dietmar
  • Maynard, Alex

Abstract

Previous literature has introduced causality tests with conventional limiting distributions in I(0)/I(1) vector autoregressive (VAR) models with unknown integration orders, based on an additional surplus lag in the specification of the estimated equation, which is not included in the tests. By extending this surplus lag approach to an infinite order VARX framework, we show that it can provide a highly persistence-robust Granger causality test that accommodates i.a stationary, nonstationary, local-to-unity, long-memory, and certain (unmodelled) structural break processes in the forcing variables within the context of a single χ2 null limiting distribution.

Suggested Citation

  • Bauer, Dietmar & Maynard, Alex, 2012. "Persistence-robust surplus-lag Granger causality testing," Journal of Econometrics, Elsevier, vol. 169(2), pages 293-300.
    • Handle: RePEc:eee:econom:v:169:y:2012:i:2:p:293-300
    DOI: 10.1016/j.jeconom.2012.01.023
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304407612000334
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jeconom.2012.01.023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Toda, Hiro Y & Phillips, Peter C B, 1993. "Vector Autoregressions and Causality," Econometrica, Econometric Society, vol. 61(6), pages 1367-1393, November.
    2. Charles Engel & Kenneth D. West, 2005. "Exchange Rates and Fundamentals," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 485-517, June.
    3. Park, Joon Y. & Phillips, Peter C.B., 1989. "Statistical Inference in Regressions with Integrated Processes: Part 2," Econometric Theory, Cambridge University Press, vol. 5(1), pages 95-131, April.
    4. Geert Bekaert & Robert J. Hodrick, 2001. "Expectations Hypotheses Tests," Journal of Finance, American Finance Association, vol. 56(4), pages 1357-1394, August.
    5. Dufour, Jean-Marie & Pelletier, Denis & Renault, Eric, 2006. "Short run and long run causality in time series: inference," Journal of Econometrics, Elsevier, vol. 132(2), pages 337-362, June.
    6. Alex Maynard, 2006. "The forward premium anomaly: statistical artefact or economic puzzle? New evidence from robust tests," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(4), pages 1244-1281, November.
    7. David A. Jaeger & M. Daniele Paserman, 2008. "The Cycle of Violence? An Empirical Analysis of Fatalities in the Palestinian-Israeli Conflict," American Economic Review, American Economic Association, vol. 98(4), pages 1591-1604, September.
    8. Dufour, Jean-Marie & Jouini, Tarek, 2006. "Finite-sample simulation-based inference in VAR models with application to Granger causality testing," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 229-254.
    9. D. Poskitt, 2007. "Autoregressive approximation in nonstandard situations: the fractionally integrated and non-invertible cases," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 59(4), pages 697-725, December.
    10. Choi, Kyongwook & Zivot, Eric, 2007. "Long memory and structural changes in the forward discount: An empirical investigation," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 342-363, April.
    11. Diebold, Francis X. & Inoue, Atsushi, 2001. "Long memory and regime switching," Journal of Econometrics, Elsevier, vol. 105(1), pages 131-159, November.
    12. Kitamura, Yuichi & Phillips, Peter C. B., 1997. "Fully modified IV, GIVE and GMM estimation with possibly non-stationary regressors and instruments," Journal of Econometrics, Elsevier, vol. 80(1), pages 85-123, September.
    13. Baillie, Richard T. & Bollerslev, Tim, 2000. "The forward premium anomaly is not as bad as you think," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 471-488, August.
    14. Hong, Yongmiao & Liu, Yanhui & Wang, Shouyang, 2009. "Granger causality in risk and detection of extreme risk spillover between financial markets," Journal of Econometrics, Elsevier, vol. 150(2), pages 271-287, June.
    15. Juan J. Dolado & Francesc Marmol, 2004. "Asymptotic inference results for multivariate long-memory processes," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 168-190, June.
    16. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, vol. 3(2), pages 123-192, June.
    17. Lewis, Richard & Reinsel, Gregory C., 1985. "Prediction of multivariate time series by autoregressive model fitting," Journal of Multivariate Analysis, Elsevier, vol. 16(3), pages 393-411, June.
    18. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
    19. Jean-Marie Dufour & Eric Renault, 1998. "Short Run and Long Run Causality in Time Series: Theory," Econometrica, Econometric Society, vol. 66(5), pages 1099-1126, September.
    20. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    21. Hidalgo, J., 2005. "A bootstrap causality test for covariance stationary processes," Journal of Econometrics, Elsevier, vol. 126(1), pages 115-143, May.
    22. Peter C. B. Phillips, 2003. "Laws and Limits of Econometrics," Economic Journal, Royal Economic Society, vol. 113(486), pages 26-52, March.
    23. Lutkepohl, Helmut & Saikkonen, Pentti, 1997. "Impulse response analysis in infinite order cointegrated vector autoregressive processes," Journal of Econometrics, Elsevier, vol. 81(1), pages 127-157, November.
    24. Swanson, N.R. & Ozyildirim, A. & Pisu, M., 1996. "A Comparison of Alternatove causality and Predictive Accuracy Tests in the presence of Integrated and Co-integrated Economic Variables," Papers 4-96-4, Pennsylvania State - Department of Economics.
    25. Stambaugh, Robert F., 1999. "Predictive regressions," Journal of Financial Economics, Elsevier, vol. 54(3), pages 375-421, December.
    26. Javier Hidalgo, 2000. "Nonparametric Test for Causality with Long-Range Dependence," Econometrica, Econometric Society, vol. 68(6), pages 1465-1490, November.
    27. Hidalgo, Javier, 2000. "Nonparametric test for causality with long-range dependence," LSE Research Online Documents on Economics 6866, London School of Economics and Political Science, LSE Library.
    28. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    29. Baillie, Richard T & Bollerslev, Tim, 1994. "The long memory of the forward premium," Journal of International Money and Finance, Elsevier, vol. 13(5), pages 565-571, October.
    30. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
    31. Crowder, William J, 1994. "Foreign exchange market efficiency and common stochastic trends," Journal of International Money and Finance, Elsevier, vol. 13(5), pages 551-564, October.
    32. Saikkonen, Pentti & Lütkepohl, HELMUT, 1996. "Infinite-Order Cointegrated Vector Autoregressive Processes," Econometric Theory, Cambridge University Press, vol. 12(5), pages 814-844, December.
    33. Alex Maynard & Peter C. B. Phillips, 2001. "Rethinking an old empirical puzzle: econometric evidence on the forward discount anomaly," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 671-708.
    34. McCracken, Michael W., 2007. "Asymptotics for out of sample tests of Granger causality," Journal of Econometrics, Elsevier, vol. 140(2), pages 719-752, October.
    35. 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.
    36. C. W. J. Granger & Roselyne Joyeux, 1980. "An Introduction To Long‐Memory Time Series Models And Fractional Differencing," Journal of Time Series Analysis, Wiley Blackwell, vol. 1(1), pages 15-29, January.
    37. Graham Elliott, 1998. "On the Robustness of Cointegration Methods when Regressors Almost Have Unit Roots," Econometrica, Econometric Society, vol. 66(1), pages 149-158, January.
    38. Saidi, Abdessamad & Roy, Roch, 2008. "Robust Optimal Tests For Causality In Multivariate Time Series," Econometric Theory, Cambridge University Press, vol. 24(4), pages 948-987, August.
    39. Choi, In, 1993. "Asymptotic Normality of the Least-Squares Estimates for Higher Order Autoregressive Integrated Processes with Some Applications," Econometric Theory, Cambridge University Press, vol. 9(2), pages 263-282, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zongwu Cai & Haiqiang Chen & Xiaosai Liao, 2020. "A New Robust Inference for Predictive Quantile Regression," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202002, University of Kansas, Department of Economics, revised Feb 2020.
    2. Chevallier, Julien & Sévi, Benoît, 2012. "On the volatility–volume relationship in energy futures markets using intraday data," Energy Economics, Elsevier, vol. 34(6), pages 1896-1909.
    3. Lin, Yingqian & Tu, Yundong, 2020. "Robust inference for spurious regressions and cointegrations involving processes moderately deviated from a unit root," Journal of Econometrics, Elsevier, vol. 219(1), pages 52-65.
    4. Pera, Jacek, 2017. "Linear and Non-linear Relationships Between Shares of the Agrifood Industries of the Warsaw Stock Exchange. Risk Aspect," Problems of World Agriculture / Problemy Rolnictwa Światowego, Warsaw University of Life Sciences, vol. 17(32, Part ), December.
    5. Andrea Bastianin & Alessandro Lanza & Matteo Manera, 2018. "Economic impacts of El Niño southern oscillation: evidence from the Colombian coffee market," Agricultural Economics, International Association of Agricultural Economists, vol. 49(5), pages 623-633, September.
    6. Stern, David I. & Enflo, Kerstin, 2013. "Causality between energy and output in the long-run," Energy Economics, Elsevier, vol. 39(C), pages 135-146.
    7. Claude Diebolt & Karine Pellier, 2018. "Patents in the Long Run: Theory, History and Statistics," Working Papers 03-18, Association Française de Cliométrie (AFC).
    8. Lusine Lusinyan & John Thornton, 2012. "The intertemporal relation between government revenue and expenditure in the United Kingdom, 1750 to 2004," Applied Economics, Taylor & Francis Journals, vol. 44(18), pages 2321-2333, June.
    9. Inoue, Atsushi & Kilian, Lutz, 2020. "The uniform validity of impulse response inference in autoregressions," Journal of Econometrics, Elsevier, vol. 215(2), pages 450-472.
    10. Georg V. Lehecka, 2014. "Have food and financial markets integrated?," Applied Economics, Taylor & Francis Journals, vol. 46(18), pages 2087-2095, June.
    11. Ryan S. Mattson & Philippe de Peretti, 2014. "Investigating the Role of Real Divisia Money in Persistence-Robust Econometric Models," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00984827, HAL.
    12. Jing, Zhongbo, 2015. "On the relation between currency and banking crises in developing countries, 1980–2010," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 267-291.
    13. Demetrescu, Matei & Georgiev, Iliyan & Rodrigues, Paulo M.M. & Taylor, A.M. Robert, 2022. "Testing for episodic predictability in stock returns," Journal of Econometrics, Elsevier, vol. 227(1), pages 85-113.
    14. Breitung, Jörg & Demetrescu, Matei, 2015. "Instrumental variable and variable addition based inference in predictive regressions," Journal of Econometrics, Elsevier, vol. 187(1), pages 358-375.
    15. Yuanyuan Li & Dietmar Bauer, 2020. "Modeling I(2) Processes Using Vector Autoregressions Where the Lag Length Increases with the Sample Size," Econometrics, MDPI, vol. 8(3), pages 1-28, September.
    16. Claude DIEBOLT & Karine PELLIER, 2018. "Patents in the Long Run: Theory, History and Statistics," Working Papers of BETA 2018-20, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    17. Claude Diebolt & Karine Pellier, 2022. "Patents in the Long Run : Theory, History and Statistics," Working Papers hal-02929514, HAL.
    18. Giray GOZGOR & Cahit MEMIS, 2015. "Price volatility spillovers among agricultural commodity and crude oil markets: Evidence from the range-based estimator," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 61(5), pages 214-221.
    19. Leong, Soon Heng & Urga, Giovanni, 2023. "A practical multivariate approach to testing volatility spillover," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).
    20. Cai, Zongwu & Chen, Haiqiang & Liao, Xiaosai, 2023. "A new robust inference for predictive quantile regression," Journal of Econometrics, Elsevier, vol. 234(1), pages 227-250.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dietmar Bauer & Alex Maynard, 2010. "Persistence-robust Granger causality testing," Working Papers 1011, University of Guelph, Department of Economics and Finance.
    2. Helmut Lütkepohl, 2013. "Vector autoregressive models," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 6, pages 139-164, Edward Elgar Publishing.
    3. Dufour, Jean-Marie & Pelletier, Denis & Renault, Eric, 2006. "Short run and long run causality in time series: inference," Journal of Econometrics, Elsevier, vol. 132(2), pages 337-362, June.
    4. Alex Maynard, 2006. "The forward premium anomaly: statistical artefact or economic puzzle? New evidence from robust tests," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(4), pages 1244-1281, November.
    5. Kellard, Neil & Sarantis, Nicholas, 2008. "Can exchange rate volatility explain persistence in the forward premium?," Journal of Empirical Finance, Elsevier, vol. 15(4), pages 714-728, September.
    6. DUFOUR, Jean-Marie & JOUINI, Tarek, 2005. "Finite-Sample Simulation-Based Inference in VAR Models with Applications to Order Selection and Causality Testing," Cahiers de recherche 2005-12, Universite de Montreal, Departement de sciences economiques.
    7. Jonathan B. Hill, 2007. "Efficient tests of long-run causation in trivariate VAR processes with a rolling window study of the money-income relationship," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(4), pages 747-765.
    8. Chevillon, Guillaume & Mavroeidis, Sophocles, 2011. "Learning generates Long Memory," ESSEC Working Papers WP1113, ESSEC Research Center, ESSEC Business School.
    9. Choi, Kyongwook & Zivot, Eric, 2007. "Long memory and structural changes in the forward discount: An empirical investigation," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 342-363, April.
    10. Dufour, Jean-Marie & Jouini, Tarek, 2006. "Finite-sample simulation-based inference in VAR models with application to Granger causality testing," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 229-254.
    11. Cho, Dooyeon & Chun, Sungju, 2019. "Can structural changes in the persistence of the forward premium explain the forward premium anomaly?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 225-235.
    12. Cleiton Guollo Taufemback, 2023. "Non‐parametric short‐ and long‐run Granger causality testing in the frequency domain," Journal of Time Series Analysis, Wiley Blackwell, vol. 44(1), pages 69-92, January.
    13. Kyongwook Choi & Eric Zivot, 2003. "Long Memory and Structural Changes in the Forward Discount: An Empirical Investigation," EERI Research Paper Series EERI_RP_2003_02, Economics and Econometrics Research Institute (EERI), Brussels.
    14. Judith A. Clarke & Mukesh Ralhan, 2005. "Direct and Indirect Causality Between Exports and Economic Output for Bangladesh and Sri Lanka: Horizon Matters," Econometrics Working Papers 0512, Department of Economics, University of Victoria.
    15. Snaith, Stuart & Coakley, Jerry & Kellard, Neil, 2013. "Does the forward premium puzzle disappear over the horizon?," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3681-3693.
    16. Xiao-Ming Li, 2014. "Rethinking Long Memory and Structural Breaks in the Forward Premium," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(4), pages 455-485, September.
    17. Javier Hualde & Morten {O}rregaard Nielsen, 2022. "Fractional integration and cointegration," Papers 2211.10235, arXiv.org.
    18. Breitung, Jorg & Candelon, Bertrand, 2006. "Testing for short- and long-run causality: A frequency-domain approach," Journal of Econometrics, Elsevier, vol. 132(2), pages 363-378, June.
    19. Sakoulis, Georgios & Zivot, Eric & Choi, Kyongwook, 2010. "Structural change in the forward discount: Implications for the forward rate unbiasedness hypothesis," Journal of Empirical Finance, Elsevier, vol. 17(5), pages 957-966, December.
    20. Liu, Wei & Maynard, Alex, 2005. "Testing forward rate unbiasedness allowing for persistent regressors," Journal of Empirical Finance, Elsevier, vol. 12(5), pages 613-628, December.

    More about this item

    Keywords

    Granger causality; VAR; Long-memory; Structural breaks; Forward rate unbiasedness;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:169:y:2012:i:2:p:293-300. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jeconom .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.