Testing for Granger (non‐)causality in a time‐varying coefficient VAR model |
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Authors: | Dimitris K. Christopoulos Miguel A. León‐Ledesma |
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Affiliation: | 1. Department of Economic and Regional Development, Panteion University, Athens, Greece;2. Department of Economics, Keynes College, University of Kent, Canterbury, UK |
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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. |
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Keywords: | Granger causality time‐varying coefficients LSTAR models |
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