In this paper, we propose a new approach for characterizing and testing Granger-causality, which is well equipped to handle models where the change in regime evolves according to multiple Markov chains. Differently from the existing literature, we propose a method for analysing causal links that specifically takes into account Markov chains. Tests for independence are also provided. We illustrate the methodology with an empirical application, and in particular, we investigate the causality and interdependence between financial and economic cycles in USA using the bivariate Markov switching model proposed by Hamilton and Lin [13]. We find that financial variables are useful in forecasting the aggregate economic activity, and vice versa.

Granger-causality in Markov switching models

BILLIO, Monica;
2015-01-01

Abstract

In this paper, we propose a new approach for characterizing and testing Granger-causality, which is well equipped to handle models where the change in regime evolves according to multiple Markov chains. Differently from the existing literature, we propose a method for analysing causal links that specifically takes into account Markov chains. Tests for independence are also provided. We illustrate the methodology with an empirical application, and in particular, we investigate the causality and interdependence between financial and economic cycles in USA using the bivariate Markov switching model proposed by Hamilton and Lin [13]. We find that financial variables are useful in forecasting the aggregate economic activity, and vice versa.
File in questo prodotto:
File Dimensione Formato  
granger-2.pdf

embargo fino al 01/01/2025

Tipologia: Documento in Pre-print
Licenza: Accesso chiuso-personale
Dimensione 171.81 kB
Formato Adobe PDF
171.81 kB Adobe PDF   Visualizza/Apri

I documenti in ARCA sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10278/44065
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 5
  • ???jsp.display-item.citation.isi??? 4
social impact