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Nonlinear Granger Causality: Guidelines for Multivariate Analysis

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  • Diks, C.G.H.

    () (University of Amsterdam)

  • Wolski, M.

    () (University of Amsterdam)

Abstract

In this paper we propose an extension of the nonparametric Granger causality test, originally introduced by Diks and Panchenko [2006. A new statistic and practical guidelines for nonparametric Granger causality testing. Journal of Economic Dynamics \& Control 30, 1647-1669]. We show that the basic test statistics lacks consistency in the multivariate setting. The problem is the result of the kernel density estimator bias, which does not converge to zero at a sufficiently fast rate when the number of conditioning variables is larger than one. In order to overcome this difficulty we apply the data-sharpening method for bias reduction. We then derive the asymptotic properties of the `sharpened' test statistics and we investigate its performance numerically. We conclude with an empirical application to the US grain market.

Suggested Citation

  • Diks, C.G.H. & Wolski, M., 2013. "Nonlinear Granger Causality: Guidelines for Multivariate Analysis," CeNDEF Working Papers 13-15, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  • Handle: RePEc:ams:ndfwpp:13-15
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    References listed on IDEAS

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    1. 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.
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    4. Diks, Cees & Panchenko, Valentyn, 2006. "A new statistic and practical guidelines for nonparametric Granger causality testing," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1647-1669.
    5. Popp, Michael P. & Dillon, Carl R. & Keisling, Terry C., 2003. "Economic and weather influences on soybean planting strategies on heavy soils," Agricultural Systems, Elsevier, vol. 76(3), pages 969-984, June.
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    Cited by:

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    2. Lien, Donald & Lee, Geul & Yang, Li & Zhang, Yuyin, 2018. "Volatility spillovers among the U.S. and Asian stock markets: A comparison between the periods of Asian currency crisis and subprime credit crisis," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 187-201.
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    8. Stolbov, Mikhail & Shchepeleva, Maria, 2020. "Systemic risk, economic policy uncertainty and firm bankruptcies: Evidence from multivariate causal inference," Research in International Business and Finance, Elsevier, vol. 52(C).
    9. Ren, Weijie & Li, Baisong & Han, Min, 2020. "A novel Granger causality method based on HSIC-Lasso for revealing nonlinear relationship between multivariate time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 541(C).
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    11. Zheng Fang & Jiang Yu, 2020. "The role of human capital in energy-growth nexus: an international evidence," Empirical Economics, Springer, vol. 58(3), pages 1225-1247, March.
    12. Ahmed, Ali & Granberg, Mark & Troster, Victor & Uddin, Gazi Salah, 2020. "Asymmetric Dynamics between Uncertainty and Unemployment Flows in the United States," LiU Working Papers in Economics 7, Linköping University, Division of Economics, Department of Management and Engineering.
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    14. Katleho Makatjane & Ntebogang Moroke & Diteboho Xaba, 2017. "Threshold Cointegration and Nonlinear Causality test between Inflation Rate and Repo Rate," Journal of Economics and Behavioral Studies, AMH International, vol. 9(3), pages 163-170.
    15. Wolski, Marcin, 2018. "Sovereign risk and corporate cost of borrowing: Evidence from a counterfactual study," EIB Working Papers 2018/05, European Investment Bank (EIB).
    16. Bu, Hui & Tang, Wenjin & Wu, Junjie, 2019. "Time-varying comovement and changes of comovement structure in the Chinese stock market: A causal network method," Economic Modelling, Elsevier, vol. 81(C), pages 181-204.
    17. Troster, Victor & Bouri, Elie & Roubaud, David, 2019. "A quantile regression analysis of flights-to-safety with implied volatilities," Resources Policy, Elsevier, vol. 62(C), pages 482-495.

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