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Estimating Long Memory Causality Relationships by a Wavelet Method

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  • Li, Yushu

    () (Department of Economics, Lund University)

Abstract

The traditional causality relationship proposed by Granger (1969) assumes the relationships between variables are short range dependent with the same integrated order. Chen (2006) proposed a bi-variate model which can catch the long-range dependent among the two variables and the series do not need to be fractionally co-integrated. A long memory fractional transfer function is introduced to catch the long-range dependent in this model and a pseudo spectrum based method is proposed to estimate the long memory parameter in the bi-variate causality model. In recent years, a wavelet domain-based method has gained popularity in estimations of long memory parameter in unit series. No extension to bi-series or multi-series has been made and this paper aims to fill this gap. We will construct an estimator for the long memory parameter in the bi-variable causality model in the wavelet domain. The theoretical background is derived and Monte Carlo simulation is used to investigate the performance of the estimator.

Suggested Citation

  • Li, Yushu, 2012. "Estimating Long Memory Causality Relationships by a Wavelet Method," Working Papers 2012:15, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2012_015
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    File URL: http://project.nek.lu.se/publications/workpap/papers/WP12_15.pdf
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    References listed on IDEAS

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    1. Mark J. Jensen, 1997. "Using Wavelets to Obtain a Consistent Ordinary Least Squares Estimator of the Long Memory Parameter," Econometrics 9710002, University Library of Munich, Germany.
    2. Thornton, Daniel L & Batten, Dallas S, 1985. "Lag-Length Selection and Tests of Granger Causality between Money and Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 164-178, May.
    3. Javier Hidalgo, 2000. "Nonparametric Test for Causality with Long-Range Dependence," Econometrica, Econometric Society, vol. 68(6), pages 1465-1490, November.
    4. Wen-Den Chen, 2006. "Estimating the long memory granger causality effect with a spectrum estimator," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(3), pages 193-200.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Some Recent Papers on Granger Causality
      by Dave Giles in Econometrics Beat: Dave Giles' Blog on 2012-12-03 00:30:00

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    More about this item

    Keywords

    Granger causality; long memory; Monte Carlo simulation; wavelet domain;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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