Abstract
In this paper we analyze Granger causality testing in a mixed-frequency VAR, originally proposed by Ghysels (2012), where the difference in sampling frequencies of the variables is large. In particular, we investigate whether past information on a low-frequency variable help in forecasting a high-frequency one and vice versa. Given a realistic sample size, the number of high-frequency observations per low-frequency period leads to parameter proliferation problems in case we attempt to estimate the model unrestrictedly. We propose two approaches to solve this problem, reduced rank restrictions and a Bayesian mixed-frequency VAR. For the latter, we extend the approach in Banbura et al. (2010) to a mixed-frequency setup, which presents an alternative to classical Bayesian estimation techniques. We compare these methods to a common aggregated low-frequency model as well as to the unrestricted VAR in terms of their Granger non-causality testing behavior using Monte Carlo simulations. The techniques are illustrated in an empirical application involving daily
realized volatility and monthly business cycle fluctuations.
realized volatility and monthly business cycle fluctuations.
Original language | English |
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Place of Publication | Maastricht |
Publisher | Maastricht University, Graduate School of Business and Economics |
DOIs | |
Publication status | Published - 1 Jan 2014 |
Publication series
Series | GSBE Research Memoranda |
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Number | 028 |