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Testing for Granger causality between industrial output and CPI in the presence of regime shift Swedish data

Testing for Granger causality between industrial output and CPI in the presence of regime shift... In this paper, we focus on the Granger causality test in the presence of regime shift. We apply a vector autoregressive (4) model on Swedish series of industrial output and consumer price index for the period 1980:1‐1998:6. To test for causality, three different test methods namely the single equation Likelihood Ratio test, the systemwise Rao's F‐ test and the Bootstrap test, have been used in this study. We show that when the assumption of parameter constancy is violated, due to the occurrence of the structural changes, Granger causality tests can provide misleading inference about the underlining relationship of causality. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Testing for Granger causality between industrial output and CPI in the presence of regime shift Swedish data

Journal of Economic Studies , Volume 31 (6): 8 – Dec 1, 2004

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Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
0144-3585
DOI
10.1108/01443580410569235
Publisher site
See Article on Publisher Site

Abstract

In this paper, we focus on the Granger causality test in the presence of regime shift. We apply a vector autoregressive (4) model on Swedish series of industrial output and consumer price index for the period 1980:1‐1998:6. To test for causality, three different test methods namely the single equation Likelihood Ratio test, the systemwise Rao's F‐ test and the Bootstrap test, have been used in this study. We show that when the assumption of parameter constancy is violated, due to the occurrence of the structural changes, Granger causality tests can provide misleading inference about the underlining relationship of causality.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Dec 1, 2004

Keywords: Parametric measures; Economic forecasting; Economic change

References