Granger-causal analysis of GARCH models: A Bayesian approach

Tomasz Woźniak

Econometric Reviews, 2018, vol. 37, issue 4, 325-346

Abstract: A multivariate GARCH model is used to investigate Granger causality in the conditional variance of time series. Parametric restrictions for the hypothesis of noncausality in conditional variances between two groups of variables, when there are other variables in the system as well, are derived. These novel conditions are convenient for the analysis of potentially large systems of economic variables. To evaluate hypotheses of noncausality, a Bayesian testing procedure is proposed. It avoids the singularity problem that may appear in the Wald test, and it relaxes the assumption of the existence of higher-order moments of the residuals required in classical tests.

Date: 2018
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Working Paper: Granger-causal analysis of GARCH models: a Bayesian approach (2015)
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DOI: 10.1080/07474938.2015.1092839

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