Multivariate out-of-sample tests for Granger causality

A time series is said to Granger cause another series if it has incremental predictive power when forecasting it. While Granger causality tests have been studied extensively in the univariate setting, much less is known for the multivariate case. Multivariate out-of-sample tests for Granger causality are proposed and their performance is measured by a simulation study. The results are graphically represented by size–power plots. It emerges that the multivariate regression test is the most powerful among the considered possibilities. As a real data application, it is investigated whether the consumer confidence index Granger causes retail sales in Germany, France, the Netherlands and Belgium. Keywords: Consumer sentiment; Granger causality; Multivariate time series; Out-of-sample tests