Granger-causality in Markov Switching Models

Monica Billio and Silvestro Di Sanzo

No 2006_20, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: In this paper we propose a new parametrisation of transition probabilities that allows us to characterize and test Granger-causality in Markov switching models by means of an appropriate specification of the transition matrix. Test for independence are also provided. We illustrate our methodology with an empirical application. In particular, we investigate the causality and interdependence between financial and economic cycles using a bivariate Markov switching model. When applied to U.S. data, we find that financial variables are useful for forecasting the direction of aggregate economic activity, and vice versa.

Keywords: Granger Causality; Markov Chains; Switching Models (search for similar items in EconPapers)
JEL-codes: C32 C53 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.unive.it/web/fileadmin/user_upload/dip ... o_Di_Sanzo_20_06.pdf First version, 2006 (application/pdf)

Related works:
Journal Article: Granger-causality in Markov switching models (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2006_20

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Venice "Ca' Foscari" Contact information at EDIRC.
Bibliographic data for series maintained by Sassano Sonia ().