Transfer Function Modeling and Granger Causality Testing

In this chapter we fit univariate and bivariate time series models in the tradition of Box and Jenkins (1976) and Granger and Newbold (1977) and apply traditional Granger causality testing following the Ashley et al. (1980) methodology. Second, we estimate Vector Autoregressive Models (VAR) and Chen and Lee (1990) Vector ARMA (VARMA) causality test. We test two series for causality: (1) stock prices and mergers and (2) the money supply and stock prices.