Lag-Length Selection and Tests of Granger Causality Between Money and Income

Abstract

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Infrastructure and private sector investment in Pakistan

“…This method combines Granger causality and Akaike's final prediction error (FPE), the (asymptotic) mean square prediction error, to determine the optimum lag for each variable. In a paper examining the problems encountered in choosing lag lengths, Thornton and Batten (1985) found Hsiao's method to be superior to both arbitrary lag length selection and several other systematic procedures for determining lag length.…”

Granger-causality in peripheral EMU public debt markets: A dynamic approach

“…8 Thornton and Batten (1985) show that the Akaike's FPE criterion performs well relative to other statistical techniques. 9 FPEX(m,0) is computed using the formula:…”

“…This poses a potential problem, since Granger-causality tests are sensitive to lag length. Therefore, it is important that the lengths selected should be the right ones to avoid inconsistently estimating the model and drawing misleading inferences (see, Thornton and Batten, 1985). In determining the optimal lag structure for each variable, we follow Hsiao's (1981) sequential method to test for causality, which combines Akaike's final predictive error (FPE, from now on) and the definition of Granger-causality 8 .…”

The Robustness of the Sovereign-Bank Interconnection: Evidence from Contingent Claims Analysis

“…10 Thornton and Batten (1985) show that Akaike's FPE criterion performs well relative to other statistical techniques.…”