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Testing for Granger (non‐)causality in a time‐varying coefficient VAR model
Author(s) -
Christopoulos Dimitris K.,
LeónLedesma Miguel A.
Publication year - 2008
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.1060
Subject(s) - granger causality , autoregressive model , econometrics , causality (physics) , vector autoregression , economics , mathematics , variable (mathematics) , physics , mathematical analysis , quantum mechanics
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.