Testing for Granger Causality with Mixed Frequency Data

58 Pages Posted: 14 Jul 2014 Last revised: 14 Jul 2015

See all articles by Eric Ghysels

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Jonathan B. Hill

University of North Carolina (UNC) at Chapel Hill – Department of Economics

Kaiji Motegi

Kobe University - Graduate School of Economics

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Date Written: June 30, 2015

Abstract

We develop Granger causality tests that apply directly to data sampled at different frequencies. We show that taking advantage of mixed frequency data allows us to better recover causal relationships when compared to the conventional common low frequency approach. We also show that the new causality tests have higher local asymptotic power as well as more power in finite samples compared to conventional tests. In an empirical application involving U.S. macroeconomic indicators, we show that the mixed frequency approach and the low frequency approach produce very different causal implications, with the former yielding more intuitively appealing result.

Keywords: Granger causality test, Local asymptotic power, Mixed Data Sampling (MIDAS), Temporal aggregation, Vector autoregression (VAR)

JEL Classification: C12, C32

Suggested Citation

Ghysels, Eric and Hill, Jonathan B. and Motegi, Kaiji, Testing for Granger Causality with Mixed Frequency Data (June 30, 2015). Available at SSRN: https://ssrn.com/abstract=2465448 or http://dx.doi.org/10.2139/ssrn.2465448

Eric Ghysels

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://www.unc.edu/~eghysels/

Jonathan B. Hill

University of North Carolina (UNC) at Chapel Hill – Department of Economics ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Kaiji Motegi (Contact Author)

Kobe University - Graduate School of Economics ( email )

2-1, Rokkodai
Nada-Ku
Kobe, Hyogo, 657-8501
Japan

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