Abstract
In this paper, we modify the multivariate nonlinear causality test to be panel nonlinear causality test and we apply these and other existing related tests to examine the causal relationship between growth in economic policy uncertainty (EPU) and real housing returns in China and India using quarterly data from 2003:01 to 2012:04. Both panel linear and nonlinear Granger causality tests suggest the existence of only linear and nonlinear unidirectional causality relationships from growth in EPU to real housing returns in both China and India, and bivariate linear Granger causality tests suggest the existence of only linear unidirectional causality relationship from growth in EPU to real housing returns only in China. However, nonlinear bivariate Granger causality tests conclude the existence of nonlinear bidirectional causality relationships between growth in EPU and real housing returns in both China and India and cross bivariate linear and nonlinear Granger causality tests discover that there is only a linear causality relationship from Indian growth in EPU to Chinese housing returns. The results confirm the relevance of EPU data to better understand and predict the future behaviour of housing market returns in these countries.
Acknowledgments
We would like to thank two anonymous referees for many helpful comments. However, any remaining errors are solely ours. Juncal Cunado gratefully acknowledges financial support from the Ministerio de Economía y Competitividad (ECO2014-55496-R). The fourth author would like to thank Robert B. Miller and Howard E. Thompson for their continuous guidance and encouragement. This research has been partially supported by grants of Hang Seng Management College, University of Pretoria, Asia University, Lingnan University, and the Research Grants Council (RGC) of Hong Kong (project numbers UGC/IDS14/15, 12500915 and 134036).
Appendix
Panel linear Granger causality.
| Null: Housing return does not cause EPU growth | Null: EPU growth does not cause housing return | |||||||
|---|---|---|---|---|---|---|---|---|
| Lags | 1 | 2 | 3 | 4 | 1 | 2 | 3 | 4 |
| Before | 0.029264 | 1.753751 | 1.088056 | 2.469526 | 0.001125 | 1.280048 | 3.515400 | 3.632350 |
| After | 0.100807 | 0.428833 | 0.475915 | 0.491588 | 0.264436 | 3.172557 | 6.012005 | 8.887597* |
The *, **, and *** denote the significance at 10%, 5% and 1% levels, respectively.
Linear Granger causality.
| Null: Housing return does not cause EPU growth | Null: EPU growth does not cause housing return | |||||||
|---|---|---|---|---|---|---|---|---|
| Lags | 1 | 2 | 3 | 4 | 1 | 2 | 3 | 4 |
| Before | ||||||||
| China | 0.030 | 0.062 | 0.216 | 1.751 | 0.111 | 1.692 | 6.633* | 71.648*** |
| India | 0.083 | 3.169 | 3.362714 | 1.499 | 0.083 | 3.464 | 1.993 | 2.730 |
| After | ||||||||
| China | 0.904 | 1.529 | 3.617 | 3.689 | 17.096*** | 26.316*** | 53.330*** | 42.997*** |
| India | 0.441 | 0.729 | 0.678 | 0.624 | 1.990 | 2.120 | 4.241 | 5.172 |
The *, **, and *** denote the significance at 10%, 5% and 1% levels, respectively.
Panel nonlinear Granger causality.
| Null: Housing return does not nonlinearly cause EPU growth | Null: EPU growth does not nonlinearly cause housing return | |||||||
|---|---|---|---|---|---|---|---|---|
| Lags | 1 | 2 | 3 | 4 | 1 | 2 | 3 | 4 |
| Before | 0.3820 | NE | NE | NE | −0.88768 | NE | NE | NE |
| After | −0.7449 | −0.924 | 2.5618*** | NE | −1.5943* | −1.45158* | −2.9649*** | NE |
The *, **, and *** denote the significance at 10%, 5% and 1% levels, respectively. NE indicates non-evaluable as there are insufficient observations for test statistic constructing.
Nonlinear Granger causality.
| Null: Housing return does not nonlinearly cause EPU growth | Null: EPU growth does not nonlinearly cause housing return | |||||||
|---|---|---|---|---|---|---|---|---|
| Lags | 1 | 2 | 3 | 4 | 1 | 2 | 3 | 4 |
| Before | ||||||||
| China | 0.1690 | NE | NE | NE | −0.07765 | NE | NE | NE |
| India | 0.12799 | NE | NE | NE | 1.2603 | NE | NE | NE |
| After | ||||||||
| China | −0.8232 | −0.68186 | 0.0280 | NE | −1.5024* | −1.8710** | −1.98239** | NE |
| India | −1.6072* | −0.6550 | 0.9466 | NE | 1.4137* | −0.0936 | −0.3671 | NE |
The *, **, and *** denote the significance at 10%, 5% and 1% levels, respectively. NE indicates non-evaluable as there are insufficient observations for test statistic constructing.
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The online version of this article offers supplementary material (https://doi.org/10.1515/snde-2016-0121).
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