This chapter develops a predictive approach to Granger causality (GC) testing that utilizes -fold cross-validation and posterior simulation to perform out-of-sample testing. A Monte Carlo study indicates that the cross-validation predictive procedure has improved power in comparison to previously available out-of-sample testing procedures, matching the performance of the in-sample F-test while retaining the credibility of post- sample inference. An empirical application to the Phillips curve is provided evaluating the evidence on GC between inflation and unemployment rates.
The authors gratefully acknowledge support from the Taft Fund, University of Cincinnati, and feedback from Rick Ashley and participants at the Midwest Econometrics Group Meetings. Any views expressed here are those of the authors and not necessarily those of the Bureau of Economic Analysis or US Department of Commerce.
Cornwall, G., Mills, J., Sauley, B. and Weng, H. (2019), "Predictive Testing for Granger Causality via Posterior Simulation and Cross-validation", Topics in Identification, Limited Dependent Variables, Partial Observability, Experimentation, and Flexible Modeling: Part A (Advances in Econometrics, Vol. 40A), Emerald Publishing Limited, pp. 275-292. https://doi.org/10.1108/S0731-90532019000040A012Download as .RIS
Emerald Publishing Limited
Copyright © 2019 Emerald Publishing Limited