VAR-Based Granger-Causality Test in the Presence of Instabilities

• Authors: Yiru Wang and Barbara Rossi.
• BSE Working Paper: 1083 | April 19
• Keywords: structural breaks , VAR , instability , local projections , gcrobustvar , Granger-causality
• JEL codes: C22 C52 C53
• structural breaks
• VAR
• instability
• local projections
• gcrobustvar
• Granger-causality

In this article, we review Granger-causality tests robust to the presence of instabilities in a Vector Autoregressive framework. We also introduce the gcrobustvar command, which illustrates the procedure in Stata. In the presence of instabilities, the Granger-causality robust test is more powerful than the traditional Granger-causality test.