The equivalence of causality detection in VAR and VECM modeling with applications to exchange rates

Brailsford, T. J., Penm, J. H. W. and Terrell, R. D. (2006) The equivalence of causality detection in VAR and VECM modeling with applications to exchange rates. Multinational Finance Journal, 10 3/4: 153-177.

Author Brailsford, T. J.
Penm, J. H. W.
Terrell, R. D.
Title The equivalence of causality detection in VAR and VECM modeling with applications to exchange rates
Journal name Multinational Finance Journal
ISSN 1096-1879
Publication date 2006
Sub-type Article (original research)
Volume 10
Issue 3/4
Start page 153
End page 177
Total pages 25
Place of publication Camden, NJ, United States
Publisher Multinational Finance Society
Language eng
Subject 1502 Banking, Finance and Investment
Abstract Vector error correction models (VECM) are increasingly being used to capture dynamic relationships between financial variables. Estimation and interpretation of such models can be enhanced if zero restrictions are allowed in the coefficient matrices. Specifically, in tests of indirect causality and/or Granger non-causality in a VECM. the efficiency of the causality detection is crucially dependent upon finding zero coefficient entries where the true structure does indeed include zero entries. Such a VECM is referred to as a zero non-zero (ZNZ) patterned VECM and includes full-order models. Recent advances have shown how ZNZ patterns can be explicitly recognized in a VECM and used to provide an effective means of detecting Granger-causality. Granger non-causality and indirect causality. This paper develops a general approach and framework for l(d) integrated systems. We show that causality detection in an l(d) system can be discovered identically from the ZNZ patterned VECM's or the equivalent VAR models (JEL: C10, C63, F30, G10). [ABSTRACT FROM AUTHOR] Copyright of Multinational Finance Journal is the property of Global Business Publications and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts)
Keyword Error correction models
VAR
Granger causality
Purchasing
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
UQ Business School Publications
 
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Created: Tue, 07 Apr 2009, 13:32:04 EST by Ms Sarada Rao on behalf of UQ Business School