CFDP 977

Vector Autoregression and Causality

Author(s): 

Publication Date: May 1991

Pages: 51

Abstract: 

This paper develops a complete limit theory for Wald tests of Granger causality in levels vector autoregression (VAR’s) and Johansen-type error correction models (ECM’s) allowing for the presence of stochastic trends and cointegration. Earlier work by Sims, Stock and Watson (1990) on trivariate VAR systems is extended to the general case, thereby formally characterizing the circumstances when these Wald tests are asymptotically valid as chi-square criteria. Our results for inference from unrestricted levels VAR are not encouraging.

Keywords: 

Error correction model, exogeneity, Granger causality, vector autoregression

JEL Classification Codes: C32, C12, C52

See CFP: 858