Testing for Granger causality between industrial output and CPI in the presence of regime shift

A. Khalik Salman (Social Sciences Department, Mid Sweden University, Sweden)
Ghazi Shukur (Departments of Economics and Statistics, Jönköping University and Växjö University, Sweden)

Journal of Economic Studies

ISSN: 0144-3585

Publication date: 1 December 2004

Abstract

In this paper, we focus on the Granger causality test in the presence of regime shift. We apply a vector autoregressive (4) model on Swedish series of industrial output and consumer price index for the period 1980:1‐1998:6. To test for causality, three different test methods namely the single equation Likelihood Ratio test, the systemwise Rao's F‐ test and the Bootstrap test, have been used in this study. We show that when the assumption of parameter constancy is violated, due to the occurrence of the structural changes, Granger causality tests can provide misleading inference about the underlining relationship of causality.

Keywords

Citation

Khalik Salman, A. and Shukur, G. (2004), "Testing for Granger causality between industrial output and CPI in the presence of regime shift", Journal of Economic Studies, Vol. 31 No. 6, pp. 492-499. https://doi.org/10.1108/01443580410569235

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Publisher

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Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited

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