Tests for Predictive Relationships Between Time Series Variables
A Monte Carlo Investigation
Charles R. Nelson
University of Washington, Seattle, WA
and National Bureau of Economic Research
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Journal of the American Statistical Association, 77 (March 1982) 11-18
Bivariate time series models have been used extensively to analyze the relationship
between pairs of economic variables. Various tests have been proposed that
can be used to examine the adequacy of specific models. The empirical literature
is noteworthy for the frequency with which different authors using different
tests reach different conclusions, and for the apparent lack of evidence for
certain relationships strongly suggested by economic theory. The objective
of this study is to use Monte Carlo methods to examine the size and power of
alternative tests, and to relate these findings to the analytical structure
of the tests.
Key words: Causality, Monte Carlo, Size, Power
JEL Classifications: C22
Cited 97 times in the SSCI and SCOPUS through 2020
© Copyright 1982, American Statistical Association
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