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A Test of Sufficient Condition for Infinite-step Granger Noncausality in Infinite Order Vector Autoregressive Process

Author

Listed:
  • Umberto Triacca

    (University of L'Aquila)

  • Olivier Damette

    (University of Lorraine)

  • Alessandro Giovannelli

    (University of L'Aquila)

Abstract

This paper derives a sufficient condition for noncausality at all forecast horizons (infinitestep noncausality). We propose a test procedure for this sufficient condition. Our procedure presents two main advantages. First, our infinite-step Granger causality analysis is conducted in a more general framework with respect to the procedures proposed in literature. Second, it involves only linear restrictions under the null, that can be tested by using standard F statistics. A simulation study shows that the proposed procedure has reasonable size and good power. Typically, one thousand or more observations are required to ensure that the test procedures perform reasonably well. These are typical sample sizes for financial time series applications. Here, we give a first example of possible applications by considering the Mixture Distribution Hypothesis in the Foreign Exchange Market

Suggested Citation

  • Umberto Triacca & Olivier Damette & Alessandro Giovannelli, 2020. "A Test of Sufficient Condition for Infinite-step Granger Noncausality in Infinite Order Vector Autoregressive Process," CEIS Research Paper 496, Tor Vergata University, CEIS, revised 18 Jun 2020.
    • Handle: RePEc:rtv:ceisrp:496
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    More about this item

    Keywords

    Granger causality; Hypothesis testing; Time series; Vector autoregressive Models;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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