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Testing subspace Granger causality

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Abstract

The methodology of multivariate Granger non-causality testing at various horizons is extended to allow for inference on its directionality. This paper presents empirical manifestations of these subspaces and provides useful interpretations for them. It then proposes methods for estimating these subspaces and finding their dimensions utilizing simple vector autoregressions modelling that is easy to implement. The methodology is illustrated by an application to empirical monetary policy.

Suggested Citation

  • Majid M. Al-Sadoon, 2015. "Testing subspace Granger causality," Economics Working Papers 1495, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1495
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    Keywords

    Granger causality; VAR model; rank testing; Okun's law; policy trade-offs.;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: 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
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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