Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 672: Testing the Granger noncausality hypothesis in stationary nonlinear models of unknown functional form

Anne Péguin-Feissolle (), Birgit Strikholm () and Timo Teräsvirta ()
Additional contact information
Anne Péguin-Feissolle: GREQAM, Postal: Centre de la Vieille Charité , 2 rue de la Charité , F-13002 Marseille , France
Birgit Strikholm: Bank of Estonia, Postal: Eesti pank, Estonia puiestee 13, EE-15095 Tallinn, Estonia
Timo Teräsvirta: CREATES, Department of Economics and Business, Postal: University of Aarhus, Building 1322 , DK-8000 Aarhus C , Denmark

Abstract: In this paper we propose a general method for testing the Granger noncausality hypothesis in stationary nonlinear models of unknown functional form. These tests are based on a Taylor expansion of the nonlinear model around a given point in a sample space. We study the performance of our tests by a Monte Carlo experiment and compare these to the most widely used linear test. Our tests appear to be well-sized and have reasonably good power properties.

Keywords: Hypothesis testing; causality

JEL-codes: C22; C51

30 pages, First version: August 27, 2007. Revised: January 18, 2012.

Note: This is a revised version (January 2012) of the paper.

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