Multivariate Out-of-Sample Tests for Granger Causality

K.U. Leuven KBI Working Paper No. 0602

20 Pages Posted: 1 Jun 2006

See all articles by Sarah Gelper

Sarah Gelper

KU Leuven - Faculty of Business and Economics (FEB)

Christophe Croux

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Catholic University of Leuven (KUL) - Department of Applied Economics

Date Written: May 2006

Abstract

A time series is said to Granger cause another series if it has incremental predictive power when forecasting it. While Granger causality tests have been studied extensively in the univariate setting, much less is known for the multivariate case. In this paper we propose multivariate out-of-sample tests for Granger causality. The performance of the out-of-sample tests is measured by a simulation study and graphically represented by Size-Power plots. It emerges that the multivariate regression test is the most powerful among the considered possibilities. As a real data application, we investigate whether the consumer confidence index Granger causes retail sales in Germany, France, the Netherlands and Belgium.Consumer Sentiment, Granger Causality, Multivariate Time Series,Out-of-sample Tests

Keywords: Belgium, Consumer confidence, Consumer Confidence Index, Consumer sentiment, Data, Forecasting, Germany, Granger causality, Indexes, Multivariate time series, Out-of-sample tests, Performance, Power, Regression, Research, Sales, Simulation, Studies, Tests, Time, Time series

Suggested Citation

Gelper, Sarah and Croux, Christophe, Multivariate Out-of-Sample Tests for Granger Causality (May 2006). K.U. Leuven KBI Working Paper No. 0602. Available at SSRN: https://ssrn.com/abstract=905213 or http://dx.doi.org/10.2139/ssrn.905213

Sarah Gelper (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Christophe Croux

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

Catholic University of Leuven (KUL) - Department of Applied Economics ( email )

Leuven, B-3000
Belgium

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