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Linear and nonlinear Granger causality between short-term and long-term interest rates: a rolling-window strategy

Author

Listed:
  • Azadeh Rahimi
  • Ba M. Chu
  • Marc Lavoie

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, University of Ottawa [Ottawa])

Abstract

In this paper, a rolling window strategy is employed to detect the linear and nonlinear Granger causality relationships between the U.S. federal funds rate and the 10-year government bond rate, during different time horizons, investigating whether these causalities change with the passing of time. For linear Granger causality tests, we apply the Toda-Yamamoto (1995) approach and for nonlinear ones we use a nonlinear Granger causality test introduced by Diks and Panchenko (2006). Our findings show that during nearly all time periods there is a significant two-way Granger causality relationship between these two interest rates.

Suggested Citation

  • Azadeh Rahimi & Ba M. Chu & Marc Lavoie, 2017. "Linear and nonlinear Granger causality between short-term and long-term interest rates: a rolling-window strategy," Post-Print hal-01435721, HAL.
  • Handle: RePEc:hal:journl:hal-01435721
    Note: View the original document on HAL open archive server: https://hal-univ-paris13.archives-ouvertes.fr/hal-01435721
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    References listed on IDEAS

    as
    1. Robert Pollin, 1991. "Two Theories of Money Supply Endogeneity: Some Empirical Evidence," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 13(3), pages 366-396, March.
    2. Giuseppe Fontana, 2003. "Post Keynesian Approaches to Endogenous Money: A time framework explanation," Review of Political Economy, Taylor & Francis Journals, vol. 15(3), pages 291-314.
    3. Marc Lavoie, 2014. "Post-Keynesian Economics," Books, Edward Elgar Publishing, number 12857, June.
    4. repec:mes:jeciss:v:18:y:1984:i:3:p:771-797 is not listed on IDEAS
    5. Marc Lavoie, 2014. "Post-Keynesian Economics: New Foundations," Post-Print hal-01343652, HAL.
    6. 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.
    7. Marc Lavoie, 2005. "Monetary base endogeneity and the new procedures of the asset-based Canadian and American monetary systems," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(4), pages 689-709.
    8. 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.
    9. Hiemstra, Craig & Jones, Jonathan D, 1994. " Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation," Journal of Finance, American Finance Association, vol. 49(5), pages 1639-1664, December.
    10. 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.
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