Detection of Lead-Lag Relationships Using Both Time Domain and Time-Frequency Domain; An Application to Wealth-To-Income Ratio

Angeliki Skoura
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Angeliki Skoura: Luxembourg School of Finance, University of Luxembourg, 4365 Esch-sur-Alzette, Luxembourg

Economies, 2019, vol. 7, issue 2, 1-27

Abstract: The objective of this paper is the joint application of two different methodological concepts for the detection of lead-lag relationships in economic time-series in order to investigate their consistency and their potential complementarity. The first methodology, a time domain analysis based on vector error correction model, provides evidence about the existence of long-run equilibrium of the time-series and the short-run lead-lag behaviors. The second methodology, a time-frequency concept based on the phase difference of the cross-wavelet coherence, analyzes the lead-lag relationships across various timescales and reveals the altering of leadership over time. The two methods are applied to time-series of wealth-to-income ratio of four developed countries over the period 1970–2010 and analyze the lead-lag relationships of the countries in the long-run and in the short-run. The results show that the two methods are consistent in their major long-run findings, however, they reveal different aspects regarding the short-run dynamics of the lead-lag relationships. Furthermore, the results suggest the complementarity of the two methodologies in the context of a complete framework for the analysis of the lead-lag relationships in non-stationary economic time-series.

Keywords: lead-lag relationships; vector error correction model; wavelet coherence; wealth-to-income ratio (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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