Standard Granger Causality Test Research Articles

FOURIER CAUSALITY AND VOLATILITY SPILLOVER PERSPECTIVES TO ANALYZE THE EFFECT OF TERRORISM ON TURKISH AND EUROPEAN STOCK MARKETS

Terrorism has become a curse for most of the underdeveloped economies. Even relatively developed regions like Europe and Turkey are struggling to combat it. Besides the economic and political consequences, terrorist activities also have psychological cost that may reflect in stock market. This study investigates the causal effects of systematic shocks on mean returns and volatility of the general and 14 sectoral indices in Europe and Turkey using contemporary causality tests like Fourier Toda-Yamamoto Causality test (Nazlioglu et al., 2016), Fourier Standard Granger Causality test (Enders and Jones, 2015), and Causality in Variance (Hafner and Herwartz, 2006). Tourism related sectors turn out to be fragile whereas financial sector have significant resilience to terrorist attacks. Moreover, the spillover analysis shows that the Turkish stock market turns out to be more fragile to terrorist attacks in Europe than the other way around.

DCNN-GCM: A Deep CNN and Granger Causality Models for Forecasting Welfare Level of Energy-Producing Countries and Evaluating the Relationship between Energy Consumption and Sustainable Economic Welfare

From the beginning of creation, human beings have realized the importance of energy for survival. They have always devoted a significant part of their energy to provide the required energy. Moreover, it can be said that energy resources have an essential role in the life and evolvement of societies. On the contrary, with the depletion of energy resources, severe environmental pollution caused by the consumption of petroleum products, and high cost of energy in the production cycle, allocating these resources must be carried out carefully. This paper aims to look at the connection between energy consumption and sustainable economic welfare in OPEC countries (Iran, Kuwait, Saudi Arabia, UAE, Ecuador, and Venezuela) during 2019–2009, utilizing the panel data method. Finally, we presented a CNN architecture for forecasting welfare levels in the case study countries. As a result, the relationship between energy consumption and economic growth among selected countries from energy-producing countries was compared in this analysis, which used the standard Granger causality test and the Granger causality test in several domains. The findings suggest that economic growth and inflation positively impact energy consumption in the countries studied. In addition, energy consumption positively impacts these countries’ sustainable economic welfare, while inflation has a negative effect. In addition, the findings of the standard Granger causality test indicate a one-way causal association between energy consumption and economic development in Iran and Venezuela, as well as one-way causality from GDP to energy consumption in Ecuador, the United Arab Emirates, Saudi Arabia, and Kuwait. Also, based on the results of the CNN method, the RMSE are 1.75, 3.81, 1.39, 0.52, 0.69, and 1.72 for Ecuador, Emirates, Iran, Saudi Arabia, Kuwait, and Venezuela, respectively.

The causal relationship between economic policy uncertainty and stock indices in OECD and non-OECD countries: evidence from time-varying Granger causality tests on a lag-augmented VAR model

ABSTRACT This study re-examined the causal relationship between economic policy uncertainty (EPU) and stock indices for Organization for Economic Co-operation and Development (OECD) and non-OECD countries. To this aim, it applied the lag-augmented vector autoregression model with a time-varying Granger causality test . Based on the standard Granger causality test results, only afew countries demonstrated acausal relationship between two variables. However, the empirical findings using of time-varying Granger causality test indicate that the causal relationship between the two variables is not present for the entire period, but it is present for some sub-periods in many countries. Additionally, the results found that causality running from stock indices to EPU (stock price-leading hypothesis) for many periods and countries. The results indicate that the relationship between two variables is not constant, meaning that it changes from one period to the next in many countries.

Granger Causality on forward and Reversed Time Series.

In this study, the information flow time arrow is investigated for stochastic data defined by vector autoregressive models. The time series are analyzed forward and backward by different Granger causality detection methods. Besides the normal distribution, which is usually required for the validity of Granger causality analysis, several other distributions of predictive errors are considered. A clear effect of a change in the order of cause and effect on the time-reversed series of unidirectionally connected variables was detected with standard Granger causality test (GC), when the product of the connection strength and the ratio of the predictive errors of the driver and the recipient was below a certain level, otherwise bidirectional causal connection was detected. On the other hand, opposite causal link was detected unconditionally by the methods based on the time reversal testing, but they were not able to detect correct bidirectional connection. The usefulness of the backward analysis is manifested in cases where falsely detected unidirectional connections can be rejected by applying the result obtained after the time reversal, and in cases of uncorrelated causally independent variables, where the absence of a causal link detected by GC on the original series should be confirmed on the time-reversed series.

Does any dynamic interaction between mutual fund and economic growth exist Evidence from India

The objective of this research is to study the existence and direction of the short-run or long-run relationship between gross mutual fund (GMF) flow and gross domestic product (GDP) in India. The data for the period of 1993 to 2018 has been analysed by employing the vector error correction model (VECM) and for the verification of the same result, a standard Granger causality test has been performed. The results of the study have suggested the existence of a long-run relationship and show the direction of changes in gross domestic product cause changes in gross mutual fund flow. As a policy implication, economic growth can be considered as a policy variable to improve the mobilisation of mutual fund resources in India.

Capital flows under global uncertainties: Evidence from Turkey

This paper investigates the effects of global economic uncertainty and trade policy–related uncertainty in the US in predicting the bond and equity flows to Turkey during the period from January 2008 to November 2019. We use the time-varying Granger-causality test to assess the ability of economic policy uncertainty and capital flows to forecast Turkish equity and bond markets using fund-level data on bond and equity inflows compiled by the Emerging Portfolio Fund Research (EPFR) global database. Although we found no evidence of causality in the standard Granger-causality test, the time-varying robust causality test detects significant episodes that imply a causal relationship between capital flows and uncertainty indexes, especially during the global financial crisis and the election of the Trump administration.

LOCALE-VARYING RELATIONSHIPS BETWEEN TOURISM DEVELOPMENT AND RETAIL PROPERTY PRICES IN A SHOPPING DESTINATION

Existing literature has inadequately examined the nexus between tourism and property prices. Additionally, it mainly focuses on hotels and housing, thereby overlooking other property categories (e.g., retail properties). The relationship between tourism development and retail property prices in shopping destinations (e.g., Hong Kong and Singapore) may hinge on the locale. More specifically, the relationship may be different in the tourist precinct or popular tourism shopping area (PTSA) and the unpopular tourism shopping area (UTSA). This study examines locale-varying relationships between tourism development (measured by tourist volume and tourism expenditure) and retail property prices from 2002Q1 to 2014Q4 in Hong Kong using standard and error-correction-model-based (ECM-based) Granger causality tests. Results of standard Granger causality tests indicate that tourism development Granger causes the increase in retail property prices in the PTSA but not in the UTSA. Moreover, results of ECM-based Granger causality tests further verify the robustness and plausibility of the tourism-led growth (in retail property prices) hypothesis in the PTSA. In other words, we find that tourism development measures can be used to better predict changes in retail property prices in the PTSA than simply referring to the price history.

Revisit Exports-Growth Nexus in Turkey

The aim of this paper is to investigate exports and economic growth causality in Turkish economies. In this sense, we employed seasonally adjusted quarterly data of economic growth (real GDP) rate and exports that cover 1987Q1-2018Q4 periods. We analyze the relationship between variables by taking into account standard bootstrap Granger non-causality test and fixed-size rolling-window estimation approach. Standard Granger causality test indicates one direction causality that running from exports to real GDP. But according to test of parameters constancy, conducted VAR model points to parameters instability both in the short and long-run periods. Parameters constancy test indicate that empirical results are not uniform for different sample periods and vary due to structural changes. Consideringly, under parameters inconstancy, results of rolling window estimation method indicate that there is positive two way Granger causality (predictive power) between variables from the early 1990s to end of 2018 periods.

Econometric Perspective of the Oil Consumption and Economic Growth Relation in India

This research aims to study the existence and direction of the short-run or long-run relationship between per capita oil consumption and gross domestic product in India. The data from 1965 to 2015 had analyzed by employing the vector error correction model. For the verification of the same result, a standard Granger causality test had performed. The study results have suggested the existence of a long-run relationship and show the direction of changes in gross domestic product cause changes in oil consumption. As a policy implication, economic growth can be considered a policy variable to improve India's oil resources.

Monetary policy uncertainty and jumps in advanced equity markets

We analyze the role of monetary policy uncertainty in predicting jumps in nine advanced equity markets. The standard linear Granger causality test detects weak evidence of monetary policy uncertainty causing jumps. But, given strong evidence of nonlinearity between jumps and monetary policy uncertainty, we next use a nonparametric causality-in-quantiles test, since the linear model is misspecified. Using this data-driven robust approach we find strong evidence of the role of monetary policy uncertainty in predicting jumps, especially toward the lower end of the conditional distribution.

The Impact of Population Ageing and Social Stratification: The Case of Latvia

Population ageing and social stratification is widely assumed to have detrimental effects on the economy yet there is little empirical evidence about the magnitude of its effects. The aim of this article is to investigate the relationships between population ageing and social stratification and the state of economy of a small and post-transition economy. We are looking for these relationships and their strength of influence; at what time after shocking these variables reach their original levels. We apply standard Granger (non-) causality tests, VAR (Vector Auto-Regressive), IRF (Impulse Response Function) and the prediction error variance analysis by using quarterly data from 2000 to 2018. Research results show that the changes in the level of GDP per capita and the number of pensions paid imply changes in the number of retired persons. The research results have important contribute to policy debates about the impact of population ageing and social stratification on the state of economy in small and post-transition economy.

Tourism Sector in the Short-Run and Economic Growth in North Sumatra, Indonesia

In many developing countries, tourism is used as a main strategy to achieve greater economic performance. Increased income, both directly and as a result of the multiplier effects of tourism revenues, earnings of foreign exchange, new employment opportunities, access to foreign direct investment and economic diversification are the potential economic benefits of tourism. Statistics on international tourist arrivals in Indonesia showed an upward trend over the past few years and reached the highest number in 2014, recording almost 9.44 million arrivals. The province of North Sumatra is well known as a tourist destination, as well as an economic hub and commercial centre. Indeed, the province was able to attract almost 28% (237,830) of tourist arrivals in 2014, an increase of 4.12 % from 2013. With such a tourist arrivals trend, the tourism sectors has significantly contributed to the economic development of North Sumatera. This paper examined the role of tourism receipts in the short-run economic growth in North Sumatra through error correction method (ECM) from 1986-2014. Econometrics method were used, such as Augmented Dickey-Fuller (ADF) for unit root test, error correction method (ECM) for short run dynamics, and Granger causality test for causal relationships. The standard Granger causality test reveals that there is a unidirectional short-run Granger causality from tourism receipts to economic growth. This study provides evidence to support a tourism-led growth hypothesis in North Sumatra.

Testing the Hypothesis of the Adequacy of the Distance-To-Default as an Indicator of Changes in Banks’ Risk Exposures

A distance to default indicates the distance measured in standard deviations of the market value of assets from the default point. The hypothesis that distance to default is indicative of changes in the levels of risk of the banking system since it precedes accounting data that indicate similar changes was tested on the basis of selected financial ratios. We have applied a modification developed by Toda and Yamamoto of the standard Granger causality test to see whether there is causality between distance to default and the selected financial ratios. Contrary to expectations, we could only prove Granger causality from lagged values of distance to default (6 – 12 months) to a leverage ratio, whereas we were not able to obtain similar relationship with other ratios. DOI: 10.15458/85451.43

Carbon emissions-income relationships with structural breaks: the case of the Middle Eastern and North African countries.

This article revisits the carbon dioxide (CO2) emissions-GDP causal relationships in the Middle Eastern and North African (MENA) countries by employing the Rossi (Economet Theor 21:962-990, 2005) instability-robust causality test. We show evidence of significant causality relationships for all considered countries within the instability context, whereas the standard Granger causality test fails to detect causal links in any direction, except for Egypt, Iran, and Morocco. An important policy implication resulting from this robust analysis is that the income is not affected by the cuts in the CO2 emissions for only two MENA countries, the UAE and Syria.

Analyzing Dynamic Relationship between Gold Price and Indian Stock Market: An Empirical Study

Gold is widely used as a mean to store value and also used as a tool to hedge against inflation. Increase and decrease in gold price is said to affect the capital market of a country and thus gold price is also said to be one of the variable that affects the health of the economy. The present study intends to examine the dynamic relationship between Gold price and Indian Stock market. This study is conducted for the period from January 1, 2008 to December 31, 2016. Unit Root Test, Cointegration test, Standard Granger Causality test, Variance Decomposition test and Impulse Response test are being conducted for the purpose of this analysis. Data was found to be stationary in first difference whereas the variables were not found to have a long term relationship among them. In absence of cointegration between the variables, Classical Granger Causality test has been conducted to check whether one variable causes the other. The study evidences a bidirectional causality between Sensex and Gold prices and unidirectional causality flowing from Gold prices to Nifty. The result of Variance Decomposition test revealed that Indian Stock market and gold prices are strongly exogenous during the period under study. Finally, Impulse Response Test revealed that positive shocks in Gold prices have very little but persistence and increasing effect on Indian Stock market. The study will enhance the understanding of relation between gold price and Indian stock market and will also help the foreign investors to understand the Indian stock market with respect to movement of gold prices.

Putting the Cart before the Horse? Re-Examining the Relationship between Domestic Savings and Economic Growth in Selected Sub-Saharan African Countries

ABSTRACTIn addition to the standard Granger causality, this paper employs the Toda–Yamamoto approach and instantaneous causality test to examine the causal relationship between domestic savings and economic growth in 10 sub-Saharan African countries utilizing time series data. Findings from both the standard Granger causality and Toda–Yamamoto approach are consistent and robust only in five countries where domestic savings and economic growth are completely independent in three countries. For the remaining two, causality runs from savings to growth. However, for the other five countries, findings produced from both causality tests are grossly inconsistent and mixed leaving us under a quandary although the Toda–Yamamoto test is often reliable on account of its ability to avoid misleading results associated with the asymptotic nature of the standard Granger causality test. Our findings further reveal an instantaneous unidirectional causality from domestic savings to economic growth for only Benin, Mali, and South Africa suggesting that savings-led growth is rapid for these countries. We conclude based on our findings that the myriad of ‘evidence’ in earlier studies on savings-growth causality should be treated with caution given that methodological differences can produce misleading results with the potential of misdirecting policy.

Stock market development and real economic activity in Peru

We explore the causal effect of stock market development on real economic activity in Peru by setting up a simple growth model that underpins long-run identifying restrictions for vector autoregressive models. This allows us to identify stock market shocks and to uncover the dynamic response of real output per capita. Using annual time series data for the period 1965–2013, we find that stock market shocks have had a short-run causal effect on real GDP per capita only after 1991, a result that is consistent with standard Granger causality tests; however, the contribution of stock market shocks to output growth dynamics has been small. Thus, policy actions aimed at further developing the Peruvian stock market may have a positive impact on the dynamics of economic growth.

Causal nexus between foreign direct investment and economic growth

Purpose– The purpose of this paper is to determine cause and effect relationship between foreign direct investment (FDI) and economic growth (gross domestic product (GDP) taken as proxy) for Brazil, Russia, India, China and South Africa (BRICS nations) individually for the period 1992-2013. Also, the study tries to explore the reasons behind the linkage between FDI and GDP by estimating a linear regression model consisting of both macro-economic and institutional variables.Design/methodology/approach– Johansen cointegration technique followed by vector error correction model (VECM) and standard Granger causality test are employed to investigate the causal linkage between FDI and GDP. To delve into the reasons behind this linkage, an ordinary least square (OLS) technique is also applied to test the linear regression model consisting of net FDI inflows as dependent variable and nine macro- economic and institutional variables. Residual diagnostics is also conducted using Breusch-Godfrey Lagrange Multiplier test for diagnosing the problem of serial correlation, Breusch-Pagan-Godfrey test for examining heteroskedasticity and Jarque Bera test for verifying the normality of residuals.Findings– The Johansen cointegration result establishes a single cointegrating vector (long run relationship) between FDI and GDP for India, China and Brazil. After proving a cointegration, VECM results revealed that there exists unidirectional long run causality running from GDP to FDI in case of Brazil, India and China. Also, it is confirmed that there exists short run causality between FDI and GDP in China, i.e. the past lags of FDI jointly impact the value of GDP. However, for Russia and South Africa, where there is no cointegration in the long run, standard Granger causality test is conducted which reveals that in both the nations, FDI and GDP are independent of one another. The results of OLS technique reveal different country-specific factors causing this linkage between FDI inflows and economic growth.Originality/value– Various researchers in the past have examined this issue of linkage between FDI and GDP in the context of various developing or developed nations. This reveals a gap in the existing literature pertaining to this causal linkage in the context of the BRICS. Thus, this study fills this gap by analyzing not just this causal nexus with the help of VECM and Granger causality techniques but also tries to explore further the reasons for such strong/weak/no link with the help of fitting a regression model which comprises of both macro-economic and institutional country-specific variables influencing this causation.

Implied Volatility Transmissions Between Thai and Selected Advanced Stock Markets

This article investigates the impacts of changes in the U.S.-implied volatility on the changes in implied volatilities of the Euro and Thai stock markets. For that purpose, volatilities implicit in stock index option prices from the United States, Euro, and Thai stock markets are analyzed using the Standard Granger Causality Test, impulse response analysis, and variance decompositions. The results found in this study suggest that the U.S. stock market is the leading source of volatility transmissions since the changes in implied volatility in the U.S. stock market are transmitted to the Euro and Thai stock markets. Implied volatility indexes are used because they contain information about future realized volatility beyond that contained past volatility. Therefore, implied volatility indexes can be used as an underlying asset in a derivative market. The risk factors that can gauge the expectations of institutional investors are important to the key players in international stock markets. Given the dominance of institutional traders in the international derivative markets, the implied volatilities should reflect international traders’ sentiment. The findings in the present article give recent knowledge for portfolio managers because they need to know the degree of dependency across stock markets so that they can diversify more efficiently.

Housing prices and mortgage interest ratesToda-Yamamoto causality test

This study analyzed the causality between house prices and mortgage interest rate. Study term is 2010:01-2015:04 because of the fact that the house price indexes were calculated since 2010. We applied the Toda-Yamamoto (1995) causality test which eludes the shortfalls associated with the standard Granger (1969) causality test. The study also estimated the impulse response functions and variance decompositions. The MWALD results revealed one way causality between mortgage interest rate and house price index, where the former Granger causes the latter. The reverse is not correct. Same results are valid for new house price index. According to the impulse response function results, shocks to the mortgage interest rate have a lagged and significantly negative impact on both the house price index and new house price index. Variance decomposition results show that both house price index and new house price index have been explained by their own lag values and the values of mortgage interest rate. These results contain some conclusions about Turkish housing markets for both academicians and practitioners.