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Granger Causality and Unit Roots

Author

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  • Carlos Vladimir Rodriguez-Caballero
  • Daniel Ventosa-Santaularia
Abstract
The asymptotic behavior of the Granger-causality test under stochastic nonstationarity is studied. Our results confirm that the inference drawn from the test is not reliable when the series are integrated to the first order. In the presence of deterministic components, the test statistic diverges, eventually rejecting the null hypothesis, even when the series are independent of each other. Moreover, controlling for these deterministic elements (in the auxiliary regressions of the test) does not preclude the possibility of drawing erroneous inferences. Grangercausality tests should not be used under stochastic nonstationarity, a property typically found in many macroeconomic variables.

Suggested Citation

  • Carlos Vladimir Rodriguez-Caballero & Daniel Ventosa-Santaularia, 2014. "Granger Causality and Unit Roots," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 3(1), pages 1-7.
    • Handle: RePEc:spt:stecon:v:3:y:2014:i:1:f:3_1_7
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    References listed on IDEAS

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    1. Mustafa Ismihan & Burcu Dinçergök & Seyit Mümin Cilasun, 2017. "Revisiting the finance–growth nexus: the Turkish case, 1980–2010," Applied Economics, Taylor & Francis Journals, vol. 49(18), pages 1737-1750, April.
    2. Antonietti, Roberto & Fontini, Fulvio, 2019. "Does energy price affect energy efficiency? Cross-country panel evidence," Energy Policy, Elsevier, vol. 129(C), pages 896-906.
    3. Rojas, Emilio & Kristjanpoller, Werner, 2015. "Relación precio-volumen mediante análisis de causalidad y efecto día de semana en los mercados accionarios latinoamericanos," Revista Lecturas de Economía, Universidad de Antioquia, CIE, issue 83, pages 9-31, January.
    4. C. Vladimir Rodríguez-Caballero & J. Eduardo Vera-Valdés, 2021. "Air Pollution and Mobility, What Carries COVID-19?," Econometrics, MDPI, vol. 9(4), pages 1-17, October.
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    1. Antonietti, Roberto & Fontini, Fulvio, 2019. "Does energy price affect energy efficiency? Cross-country panel evidence," Energy Policy, Elsevier, vol. 129(C), pages 896-906.
    2. Mariana Kaneva, 2019. "Telecommunications infrastructure and GDP /Jipp curve/," Economics and computer science, Publishing house "Knowledge and business" Varna, issue 1, pages 6-29.
    3. Rodríguez-Caballero, Carlos Vladimir & Ventosa-Santaulària, Daniel, 2017. "Energy-growth long-term relationship under structural breaks. Evidence from Canada, 17 Latin American economies and the USA," Energy Economics, Elsevier, vol. 61(C), pages 121-134.

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