GRANGER-CAUSALITY IN COINTEGRATED VAR PROCESSES - THE CASE OF THE TERM STRUCTURE

Wald tests for Granger-causality in bivariate cointegrated finite order VAR processes are considered. It is argued that in the bivariate case these tests maintain their usual asymptotic properties. The relationship between short- and long-term interest rates in the U.S. is investigated in the light of this result. The long-term rate is found to cause the short-term rate in contrast to what is assumed in some other studies.