Testing for granger (non-) causality in a time varying coefficient VAR model

Dimitris K. Christopoulos and Miguel León-Ledesma

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. -- Granger causality ; Time-varying coefficients ; LSTAR models

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Year of publication:	Jan. 2008
Other Persons:	Christopulos, Dēmētrēs K. (contributor) ; León-Ledesma, Miguel A. (contributor)
Publisher:	Canterbury : Univ. of Kent, Dep. of Economics
Subject:	Kausalanalyse \| Causality analysis \| VAR-Modell \| VAR model \| Zeitreihenanalyse \| Time series analysis \| Statistische Methodenlehre \| Statistical theory \| Geldmenge \| Money supply \| Bruttoinlandsprodukt \| Gross domestic product \| USA \| United States \| 1952-2002