Abstract
This article investigates the problem of testing instantaneous causality between vector autoregressive (VAR) variables with time-varying unconditional covariance. It is underlined that the standard test does not control the Type I errors, while the tests with White and heteroscedastic autocorrelation consistent (HAC) corrections can suffer from a severe loss of power when the covariance is not constant. Consequently, we propose a modified test based on a bootstrap procedure. We illustrate the relevance of the modified test through a simulation study. The tests considered in this article are also compared by investigating the instantaneous causality relations between U.S. macroeconomic variables.
Original language | English |
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Pages (from-to) | 46-53 |
Number of pages | 8 |
Journal | Journal of Business and Economic Statistics |
Volume | 33 |
Issue number | 1 |
DOIs | |
State | Published - 2 Jan 2015 |
Externally published | Yes |
Keywords
- Unconditionally heteroscedastic errors
- VAR model
- Wild bootstrap