Exploring the relationship between money stock and GDP in the Euro Area via a bootstrap test for Granger-causality in the frequency domain
The question regarding the relationship between money stock and GDP in the Euro Area is still under debate. In this paper we address the theme by resorting to Granger-causality spectral estimation and inference in the frequency domain. We propose a new bootstrap test on unconditional and conditional Granger-causality, as well as on their difference, to catch particularly prominent causality cycles. The null hypothesis is that each causality or causality difference is equal to the median across frequencies. In a dedicated simulation study, we prove that our tool is able to disambiguate causalities significantly larger than the median even in presence of a rich causality structure. Our results hold until the stationary bootstrap of Politis & Romano (1994) is consistent on the underlying stochastic process. By this method, we point out that in the Euro Area money and output co-implied before the financial crisis of 2008, while after the crisis the only significant direction is from money to output with a shortened period.
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