Present value relations, Granger non-causality and VAR stability

Fanelli, Luca (2006): Present value relations, Granger non-causality and VAR stability.

Abstract

When in "exact" present value (PV) relations the decision variables do not Granger cause the explanatory variables and a VAR process is used to derive restrictions, the system embodies explosive roots. Hence any test of the PV restrictions would reject the null if the system incorporates Granger non-causality constraints. This paper investigates the issue.

• Item Type: MPRA Paper
• Institution: Department of Statistics, University of Bologna
• Language: English
• Keywords: Granger non causality; Present value model; VAR
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C00 - General

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