Exploring the relationship between money stock and GDP in the Euro Area via a bootstrap test for Granger-causality in the frequency domain
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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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