Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/68118 
Year of Publication: 
2008
Series/Report no.: 
Department of Economics Discussion Paper No. 08,02
Publisher: 
University of Kent, Department of Economics, Canterbury
Abstract: 
In this paper we propose Granger (non-)causality tests based on a VAR model allowing for time-varying coefficients. The functional form of the time-varying coefficients is a Logistic Smooth Transition Autoregressive (LSTAR) model using time as the transition variable. The model allows for testing Granger non-causality when the VAR is subject to a smooth break in the coefficients of the Granger causal variables. The proposed test then is applied to the money-output relationship using quarterly US data for the period 1952:2-2002:4. We find that causality from money to output becomes stronger after 1978:4 and the model is shown to have a good out of sample forecasting performance for output relative to a linear VAR model.
Subjects: 
Granger causality
Time-varying coefficients
LSTAR models
JEL: 
C51
C52
Document Type: 
Working Paper

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