Testing for Granger (non-)causality in a time-varying coefficient VAR model
✍ Scribed by Dimitris K. Christopoulos; Miguel A. León-Ledesma
- Publisher
- John Wiley and Sons
- Year
- 2008
- Tongue
- English
- Weight
- 156 KB
- Volume
- 27
- Category
- Article
- ISSN
- 0277-6693
- DOI
- 10.1002/for.1060
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✦ Synopsis
Abstract
In this paper we propose Granger (non‐)causality tests based on a VAR model allowing for time‐varying coefficients. The functional form of the time‐varying coefficients is a logistic smooth transition autoregressive (LSTAR) model using time as the transition variable. The model allows for testing Granger non‐causality when the VAR is subject to a smooth break in the coefficients of the Granger causal variables. The proposed test then is applied to the money–output relationship using quarterly US data for the period 1952:2–2002:4. We find that causality from money to output becomes stronger after 1978:4 and the model is shown to have a good out‐of‐sample forecasting performance for output relative to a linear VAR model. Copyright © 2008 John Wiley & Sons, Ltd.