Short and long run causality measures: theory and inference

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dc.contributor.author Dufour, Jean-Marie
dc.contributor.author Taamouti, Abderrahim
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned 2008-07-03T12:15:37Z
dc.date.available 2008-07-03T12:15:37Z
dc.date.issued 2008-07
dc.identifier.issn 2340-5031
dc.identifier.uri http://hdl.handle.net/10016/2734
dc.description.abstract The concept of causality introduced by Wiener (1956) and Granger (1969) is defined in terms of predictability one period ahead. This concept can be generalized by considering causality at a given horizon h, and causality up to any given horizon h [Dufour and Renault (1998)]. This generalization is motivated by the fact that, in the presence of an auxiliary variable vector Z, it is possible that a variable Y does not cause variable X at horizon 1, but causes it at horizon h > 1. In this case, there is an indirect causality transmitted by Z. Another related problem consists in measuring the importance of causality between two variables. Existing causality measures have been defined only for the horizon 1 and fail to capture indirect causal effects. This paper proposes a generalization of such measures for any horizon h. We propose nonparametric and parametric measures of unidirectional and instantaneous causality at any horizon h. Parametric measures are defined in the context of autoregressive processes of unknown order and expressed in terms of impulse response coefficients. On noting that causality measures typically involve complex functions of model parameters in VAR and VARMA models, we propose a simple method to evaluate these measures which is based on the simulation of a large sample from the process of interest. We also describe asymptotically valid nonparametric confidence intervals, using a bootstrap technique. Finally, the proposed measures are applied to study causality relations at different horizons between macroeconomic, monetary and financial variables in the U.S. These results show that there is a strong effect of nonborrowed reserves on federal funds rate one month ahead, the effect of real gross domestic product on federal funds rate is economically important for the first three months, the effect of federal funds rate on gross domestic product deflator is economically weak one month ahead, and finally federal fundsrate causes the real gross domestic product until 16 months.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M Working papers. Economics
dc.relation.ispartofseries 08-20
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Time series
dc.subject.other Granger causality
dc.subject.other Indirect causality
dc.subject.other Multiple horizon causality
dc.subject.other Causality measure
dc.subject.other Predictability
dc.subject.other Autoregressive model
dc.subject.other Vector autoregression
dc.subject.other VAR
dc.subject.other Bootstrap
dc.subject.other Monte Carlo
dc.subject.other Macroeconomics
dc.subject.other Money
dc.subject.other Interest rates
dc.subject.other Output
dc.subject.other Inflation
dc.title Short and long run causality measures: theory and inference
dc.type workingPaper
dc.type workingPaper
dc.subject.jel C1
dc.subject.jel C12
dc.subject.jel C15
dc.subject.jel C32
dc.subject.jel C51
dc.subject.jel C53
dc.subject.jel E3
dc.subject.jel E4
dc.subject.jel E52
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
dc.identifier.repec we083720
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