A Test of Sufficient Condition for Infinite-Step Granger Noncausality in Infinite Order Vector Autoregressive Process

16 Pages Posted: 25 Jun 2020

See all articles by Umberto Triacca

Umberto Triacca

University of L'Aquila - Department of Information Engineering, Computer Science and Mathematics

Olivier Damette

BETA-CNRS, Université de Lorraine

Alessandro Giovannelli

University of Rome Tor Vergata

Date Written: June 18, 2020

Abstract

This paper derives a sufficient condition for noncausality at all forecast horizons (infinitestep noncausality). We propose a test procedure for this sufficient condition. Our procedure presents two main advantages. First, our infinite-step Granger causality analysis is conducted in a more general framework with respect to the procedures proposed in literature. Second, it involves only linear restrictions under the null, that can be tested by using standard F statistics. A simulation study shows that the proposed procedure has reasonable size and good power. Typically, one thousand or more observations are required to ensure that the test procedures perform reasonably well. These are typical sample sizes for financial time series applications. Here, we give a first example of possible applications by considering the Mixture Distribution Hypothesis in the Foreign Exchange Market.

Keywords: Granger causality, Hypothesis testing, Time series, Vector autoregressive Models

JEL Classification: C12, C22, C58

Suggested Citation

Triacca, Umberto and Damette, Olivier and Giovannelli, Alessandro, A Test of Sufficient Condition for Infinite-Step Granger Noncausality in Infinite Order Vector Autoregressive Process (June 18, 2020). CEIS Working Paper No. 496, Available at SSRN: https://ssrn.com/abstract=3630340 or http://dx.doi.org/10.2139/ssrn.3630340

Umberto Triacca

University of L'Aquila - Department of Information Engineering, Computer Science and Mathematics ( email )

via Vetoio
L'Aquila, AQ 67100
Italy

Olivier Damette

BETA-CNRS, Université de Lorraine ( email )

Lorraine
France

Alessandro Giovannelli (Contact Author)

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

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