Using the following US data: Federal Funds Rate (ffr), intermediate-term rate: Government Bond Yields 3 Years (mid), and long-term rate: Government Bond Yields 10 Years (long), a researcher obtains the following Granger Causality Test results
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Pairwise Granger Causality tests
Date 11/18/00 Time 13:00
Sample 1980.01 2000:09
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Null Hypothesis.
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Obs
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F.Siatistic
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Probabildy
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MID does nc4 Granger Cause FFR
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247
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32 8313
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24E-13
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FFR does not Granger Cause MID
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4 62628
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0 01E67
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LONG does not Granger Cause FFR
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247
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23 7796
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3 7E-10
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FFR does riot Granger Cause LONG
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2 37307
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0.09536
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LONG does not Granger Cause MID
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247
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508827
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0.00685
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MID does not Granger Cause LONG
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1.70200
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0 18449
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a. What can you conclude about the relationship between these three interest rates?
b. How do you select the lag length for Granger Causality test?
c. Can we perform Granger Causality test with VECM?