Granger Causality and Regime Inference in Bayesian Markov-Switching VARs

Matthieu Droumagueta, Anders Warneb and Tomasz Wozniakc ()
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Matthieu Droumagueta: Department of Economics, European University Institute
Anders Warneb: Directorate General Research, European Central Bank
Tomasz Wozniakc: Department of Economics, University of Melbourne, http://www.findanexpert.unimelb.edu.au/display/person426516

Department of Economics - Working Papers Series from The University of Melbourne

Abstract: We derive restrictions for Granger noncausality in Markov-switching vector autoregressive models and also show under which conditions a variable does not affect the forecast of the hidden Markov process. Based on Bayesian approach to evaluating the hypotheses, the computational tools for posterior inference include a novel block Metropolis-Hastings sampling algorithm for the estimation of the restricted models. We analyze a system of monthly US data on money and income. The results of testing in MS-VARs contradict those in linear VARs: the money aggregate M1 is useful for forecasting income and for predicting the next period’s state.

Keywords: Technical Efficiency; Penalised Splines; Gibbs Sampling (search for similar items in EconPapers)
JEL-codes: C11 C12 C32 C53 E32 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2015-05
New Economics Papers: this item is included in nep-ets, nep-for, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:1191

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