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Properties of Time-Varying Causality Tests in the Presence of Multivariate Stochastic Volatility

DOI: 10.4236/ojs.2016.65064, PP. 777-788

Keywords: Time-Varying Causality Tests, Wild Bootstrap, Multivariate Stochastic Volatility

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Abstract:

This paper compares the statistical properties of time-varying causality tests when errors of variables have multivariate stochastic volatility (SV). The time-varying causal-ity tests in this paper are based on a logistic smooth transition autoregressive model. The compared time-varying causality tests include asymptotic tests, heteroskedasticity-robust tests, and tests using wild bootstrap. Our simulation results show that asymptotic tests and heteroskedasticity-robust counterparts have size distortions under multivariate SV, whereas tests using wild bootstrap have better size properties regardless of type of error. In particular, the time-varying causality test with first-order Taylor approximation using wild bootstrap has better statistical properties.

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