Download This PaperLong-Run Causality, with an Application to International Links between Long-Term Interest Rates
29 Pages Posted: 5 Jan 2011
Date Written: June 1, 1998
Abstract
In this paper we give a precise definition of long-run causality in a multivariate non-stationary, possibly cointegrated, framework. A variable is said to be causal for another in the long run if knowledge of the past of the former improves long-run predictions of the latter. In a VAR framework, we show that long-run non-causality can be easily tested with a Wald statistics, conditionnally on the cointegration rank. The methodology is used to study long-run causal links between US, German, and French long-term interest rates from January 1990 to June 1997.
Keywords: Causality, Prediction Improvement, Cointegration
JEL Classification: C12, C32
Suggested Citation: Suggested Citation
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