Publication Type

Journal Article

Version

Preprint

Publication Date

9-2014

Abstract

We construct two classes of smoothed empirical likelihood ratio tests for the conditional independence hypothesis by writing the null hypothesis as an infinite collection of conditional moment restrictions indexed by a nuisance parameter. One class is based on the CDF; another is based on smoother functions. We show that the test statistics are asymptotically normal under the null hypothesis and a sequence of Pitman local alternatives. We also show that the tests possess an asymptotic optimality property in terms of average power. Simulations suggest that the tests are well behaved in finite samples. Applications to some economic and financial time series indicate that our tests reveal some interesting nonlinear causal relations which the traditional linear Granger causality test fails to detect.

Keywords

Conditional independence, Empirical likelihood, Granger causality, Local smoothed bootstrap, Nonlinear dependence, Nonparametric regression, U-statistics

Discipline

Econometrics

Research Areas

Econometrics

Publication

Journal of Econometrics

Volume

182

Issue

1

First Page

27

Last Page

44

ISSN

0304-4076

Identifier

10.1016/j.jeconom.2014.04.006

Publisher

Elsevier

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1016/j.jeconom.2014.04.006

Included in

Econometrics Commons

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