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Some methodological comments on 'Public investment and private capital formation in a vector error-correction model of growth' by K. H. Ghali

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  • Mudit Kulshreshtha
  • Barnali Nag

Abstract

The note comments on the application of Granger non-causality tests of short-run vector error correction models as attempted by Ghali. It is noted that when the dimension of VAR is greater than two, block Granger causality needs to be performed, and that checking variable to variable causality has little meaning in multivariate context as the covariance matrix is positive definite. It is also noted that identification of cointegrating relationships does not provide information on short-run structural relationships, which requires modelling of contemporaneous innovations.

Suggested Citation

  • Mudit Kulshreshtha & Barnali Nag, 2000. "Some methodological comments on 'Public investment and private capital formation in a vector error-correction model of growth' by K. H. Ghali," Applied Economics Letters, Taylor & Francis Journals, vol. 7(9), pages 581-583.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:9:p:581-583
    DOI: 10.1080/13504850050059041
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    References listed on IDEAS

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    1. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
    2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    3. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    5. Pesaran, M. Hashem & Smith, Ron, 1995. "The role of theory in econometrics," Journal of Econometrics, Elsevier, vol. 67(1), pages 61-79, May.
    6. Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-191, January.
    7. Khalifa Ghali, 1998. "Public investment and private capital formation in a vector error-correction model of growth," Applied Economics, Taylor & Francis Journals, vol. 30(6), pages 837-844.
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    Cited by:

    1. Naveed H. Naqvi, 2002. "Crowding-in or Crowding-out? Modelling the Relationship between Public and Private Fixed Capital Formation Using Co-integration Analysis: The Case of Pakistan 1964-2000," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(3), pages 255-276.

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