An empirical analysis of the relationship between the budget deficit and the trade deficit.ABSTRACT This paper is an attempt to find the statistical evidence of the relationship between the U.S. government's budget deficit and the trade deficit by applying the cointegration and the Granger causality Granger causality is a technique for determining whether one time series is useful in forecasting another. Ordinarily, regressions reflect "mere" correlations, but Clive Granger, who won a Nobel Prize in Economics, argued that there is an interpretation of a set of tests as tests. For this purpose, the trade data are collected from the U.S. Census Bureau Noun 1. Census Bureau - the bureau of the Commerce Department responsible for taking the census; provides demographic information and analyses about the population of the United States Bureau of the Census , Foreign Trade Division. The data on the government budget deficits are from the Executive Office of the President, Fiscal Year, 2005. The data on trade deficit and budget deficit covers the period from 1960 through 2003. Applying Johansen's cointegration tests, we find long run equilibrium relationship between the budget deficit and the trade deficit. Granger causality tests show that there is a unidirectional The transfer or transmission of data in a channel in one direction only. causality causality, in philosophy, the relationship between cause and effect. A distinction is often made between a cause that produces something new (e.g., a moth from a caterpillar) and one that produces a change in an existing substance (e.g. between the trade deficit and the budget deficit. Contrary to the previous findings, our results show that the trade deficit "Granger Cause" the budget deficit. Keywords: Trade Deficit, Budget Deficit, Cointegration Test, Granger Causality Test 1. INTRODUCTION Since the mid-seventies the U.S. current account balance has consistently been in the negative territory. By the end of the year 2004, the trade deficit amounted to about 6 percent of GDP GDP (guanosine diphosphate): see guanine. and the net international investment position was about 25 percent of the GDP. At the end of December 2004, U.S. exports had risen by 11.2 percent, while imports had grown by 16.8 percent. Yearly exports receipts have consistently lagged behind imports expenditures. During the same period of time with the exception of a few years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time U.S. government's budget deficit has been widening. Economic theory attributes the trade deficit to the increase in the U.S. government's budget deficit. Economists largely accept this view. This relationship is known as the "twin deficits". Economic theory suggests that the link between the U.S. trade deficit and the budget deficit is through the interest rate and its effect on the value of dollar. While there is consensus among the economists that reducing budget deficits and debt will reduce interest rates, debate continues on the effects on the exchange rate. However, this growing U.S. "twin deficits" is a major concern among economists and policy makers. The paper is organized as follows. Section 2 discusses the available literature and data sources while in section 3 the methodology and testable hypotheses are discussed. Empirical results are presented in section 4 and section 5 concludes the paper. 2. LITERATURE REVIEW Many researchers have tested the link between "twin deficits". In general, there are mixed results. Darrat (1988) has tested the causal relationship between the trade deficit and the budget deficit of the U.S. using a technique suggested by Granger (1980). He has concluded there is some evidence that government budget deficit is a causal determinant determinant, a polynomial expression that is inherent in the entries of a square matrix. The size n of the square matrix, as determined from the number of entries in any row or column, is called the order of the determinant. of the trade deficit. Hutchison and Pigott (1984) have investigated the relationship between the government budget deficit, exchange rates, and the current account balance. They have concluded that an increase in the budget deficit is likely to raise domestic real interest rates, which in turn, would raise the value of dollar and subsequently would increase the trade balance. Research by Dewald (1983), Dwyer (1982), Holelscher (1983), and Evans (1985) show that interest rates are not affected by the size of the budget deficit. Feldstein (1992) has argued that the trade deficit is not a derivative of the budget deficit but rather, the result of the spendthrift One who spends money profusely and improvidently, thereby wasting his or her estate. Under various statutes, a spendthrift is a person who wastes or reduces her estate through excessive drinking, gambling, idleness, or debauchery in a manner that exposes that individual or habits of American consumers. Americans are spending more than they produce. To do this, they must borrow from foreigners Foreigners alienage the condition of being an alien. androlepsy Law. the seizure of foreign subjects to enforce a claim for justice or other right against their nation. gypsyologist, gipsyologist Rare. and, thus, pay attractive interest rates to foreign creditor An individual to whom an obligation is owed because he or she has given something of value in exchange. One who may legally demand and receive money, either through the fulfillment of a contract or due to injury sustained as a result of another's Negligence . The study by Mahdavi and Sorabian (1993) attempts to empirically investigate the dynamic relationships between the exchange rate and the trade balance. Their study performed tests of Granger Causality between the nominal and real exchange rates Real exchange rates Exchange rates that have been adjusted for the inflation differential between two countries. of the dollar and the U.S. trade balance. Their results suggest weak statistical evidence of causality running from the nominal exchange rate Nominal exchange rate The actual foreign exchange quotation in contrast to the real exchange rate, which has been adjusted for changes in purchasing power. , which indicates that the movements in the exchange rate have a rather limited effect on the trade balance. Bahmani-Oskoee, et. al study (1993) examines the statistical relationship between the U.S. budget deficit and the value of the dollar applying cointegration and error correction techniques on the quarterly data over the period 1971-1990. Their initial study showed no evidence of cointegration. But, when the 1985 foreign exchange market intervention was incorporated into the model, it was found that the two variables are cointegrated. Their results of error correction model have shown bidirectional The ability to move, transfer or transmit in both directions. causality between budget deficits and the effective exchange rate of dollar. No conclusive evidence CONCLUSIVE EVIDENCE. That which cannot be contradicted by any other evidence,; for example, a record, unless impeached for fraud, is conclusive evidence between the parties. 3 Bouv. Inst. n. 3061-62. of a relationship between large budget deficits and high interest rates has been found by Beck (1993) study. Two competing explanations are tested by examining the impact of government budget announcements on the exchange rates. Thorbecke (1993) study supports the argument that a reduction in the U.S. budget deficit would reduce excess spending and lower the trade deficit. A study by Eravi and et. al (1992) shows that dollar's strength during the 1980s appears to have been directly linked to that decade's large budget deficits and the subsequent increase in the stock of federal debt outstanding. However, evidence on the relationship between the federal deficit and the dollar value is not clear. Their study also shows that deficits do not directly Granger cause the exchange rate changes, but there is evidence of an indirect effect working through the money supply and the price level. Humpage (1992) applied the cointegration tests and found no evidence of long term relationship between the common aggregate measures of U.S. fiscal policy and the real long-term interest rates, the real dollar exchange rates, and the real net exports. Mohammadi and Skaggs (1996) in their study have found that the effect of the budget balance on the trade balance, if any, is modest. Hooper hoop·er n. A maker or repairer of barrels and tubs; a cooper. , Johnson and Marquez (1998) found that the long-run elasticity of U.S. exports of goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. with respect to foreign national income was 0.80, while the long-run elasticity of U.S. imports of goods and services with respect to U.S. national income was 1.80. This asymmetry Asymmetry A lack of equivalence between two things, such as the unequal tax treatment of interest expense and dividend payments. has consistently appeared in several analyses over different estimation estimation In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. periods, data and econometric e·con·o·met·rics n. (used with a sing. verb) Application of mathematical and statistical techniques to economics in the study of problems, the analysis of data, and the development and testing of theories and models. techniques (see Houthakker and Magee, 1996; Cline cline, in biology, any gradual change in a particular characteristic of a population of organisms from one end of the geographical range of the population to the other. , 1989; Wren-Lewis and Driver, 1998). Mann (2002) argues that focusing too much attention to current account balance is misguided mis·guid·ed adj. Based or acting on error; misled: well-intentioned but misguided efforts; misguided do-gooders. mis·guid , because the current account is not a fundamental economic force in itself, but only one out of many factors of the general equilibrium General equilibrium theory is a branch of theoretical microeconomics. It seeks to explain production, consumption and prices in a whole economy. General equilibrium tries to give an understanding of the whole economy using a bottom-up approach, starting with individual , such as domestic rate of saving and investment, economic growth and trade, international investment and capital flows, prices and rates of return and the exchange rate, and fiscal and monetary policy. Thus the debate continues because there is no conclusive Determinative; beyond dispute or question. That which is conclusive is manifest, clear, or obvious. It is a legal inference made so peremptorily that it cannot be overthrown or contradicted. empirical evidence on the relationship between the deficit and the exchange rate. Our paper is an attempt to find further evidence of the relationship between the budget deficit and the trade deficit by applying the cointegration and the Granger causality tests. 2.1 Data Sources The variables of our study are the U.S. trade deficit and the government budget deficit, the Fed Funds fed funds See federal funds. rate (proxy for interest rate), the trade weighted exchange rate index (proxy for exchange rate), exports, imports and trade balance (percentage of GDP) For this purpose, the trade data are collected from the U.S. Census Bureau, Foreign Trade Division. The data on the government budget deficits are from the Executive Office of the President, Fiscal Year, 2005. The data on trade deficit and budget deficit covers the period from 1960 through 2003. The exports, imports, and GDP data cover the period from 1940 through 2003. 3 METHODOLOGY 3.1 Unit Root Test The Augmented Dickey Fuller (ADF (1) (Application Development Facility) An IBM programmer-oriented mainframe application generator that runs under IMS. (2) (Automatic Document Feeder) A paper stacker that feeds one sheet of paper at a time into the unit. ) test is used to determine whether the variables are nonstationary (unit root). ADF requires running a regression of the first difference of the series against the series lagged once, lagged difference terms, a constant and a time trend such as [DELTA][x.sub.t] = [[lambda].sub.0] + [[lambda].sub.1] [X.sub.t-1] + [[lambda].sub.2] T + [summation summation n. the final argument of an attorney at the close of a trial in which he/she attempts to convince the judge and/or jury of the virtues of the client's case. (See: closing argument) ] [[lambda].sub.i] [DELTA] [x.sub.t-l] + [[epsilon].sub.t] i = 1 ... k (1) where [DELTA] is the first difference operator, [[epsilon].sub.t] is an error term, k is the number of lagged first difference term and is determined such that [[epsilon].sub.t] approaches to white noise. The null hypothesis null hypothesis, n theoretical assumption that a given therapy will have results not statistically different from another treatment. null hypothesis, n specifies nonsationary series or unit root ([H.sub.o]: [[lambda].sub.1] = 0) . The output of the ADF test consists of the t-statistic on the estimated coefficient coefficient /co·ef·fi·cient/ (ko?ah-fish´int) 1. an expression of the change or effect produced by variation in certain factors, or of the ratio between two different quantities. 2. of the lagged variable ([[lambda].sub.1]) and the Mackinnon critical values for the test of a zero coefficient. If the estimated coefficient is significantly different from zero then the [H.sub.o] is rejected, suggesting the series are stationary Stationary can mean:
3.2 Cointegration Test: The theory of cointegration, first introduced first by Granger (1981) and then developed by Granger (1986) and Engle aqnd Granger (1987), integrates the short-run dynamics with long-run equilibrium relationship. A set of time-series variables are said to be cointegrated if they are integrated of the same order and a linear combination of them is stationary. Such linear combination would then point to the existence of a long-term relationship among the variables. If there are r stable long-run relationships (cointegrating equations) in k dimensional vector of time series, then these k series share k-r common stochastic By guesswork; by chance; using or containing random values. stochastic - probabilistic trends. On the other hand, given the unique relationship between cointegration and the error correction models, then there must be some Granger causality (i.e., precedence The order in which an expression is processed. Mathematical precedence is normally: 1. unary + and - signs 2. exponentiation 3. multiplication and division 4. ) in at least one direction. This paper exploits these relationships and investigates the presence of common stochastic trends by means of the vector autoregressive representation. Our study used maximum likelihood approach of Johansen for estimating and testing the number of cointegrating relationships among the components of a k-vector [x.sub.i] of variables. 3.3 The Granger Causality Test: The Granger approach to the question of whether X and Y are Granger causality related is thus to see how much of the current Y can be explained by past values of Y and then to see whether adding lagged values of X can improve the explanation. Y is said to be Granger-caused by X if X helps in the prediction of Y, or equivalently if the coefficients on the lagged values of X are statistically significant. More specifically let us consider the following two variable VAR model: [Y.sub.t] = [[alpha].sub.10] + [summation] [[alpha].sub.1i] [X.sub.t-i] + [summation] [[beta].sub.1j] [Y.sub.t-j] + [[epsilon].sub.1t] (2) [X.sub.t] = [[alpha].sub.20] + [summation] [[alpha].sub.21] [X.sub.t-i] + [summation] [[beta].sub.2j] [Y.sub.t-j] + [[epsilon].sub.2t] (3) where [[epsilon].sub.t] is white noise, p is the order of the lag for X, and q is the order of the lag for Y. With respect to this model we can distinguish the following cases: (i) If [[[alpha].sub.11], [[alpha].sub.12], ..., [[alpha].sub.1]] [not equal to] 0 and [[[beta].sub.21], [[beta].sub.22], ..., [[beta].sub.2q]] = 0, there exists a unidirectional causality from [X.sub.t] to [Y.sub.t], denoted as X [right arrow] Y. (ii) If [[[alpha].sub.11], [[alpha].sub.12], ..., [[alpha].sub.1p]] = 0 and [[[beta].sub.21], [[beta].sub.22], ..., [[beta].sub.2q]] [not equal to] 0, there exists a unidirectional causality from [Y.sub.t], to [X.sub.t], denoted as Y [right arrow] X. (iii) If [[[alpha].sub.11], [[alpha].sub.12], ..., [[alpha].sub.1p]] [not equal to] 0 and [[[beta].sub.21], [[beta].sub.22], ..., [[beta].sub.2q]] [not equal to] 0, there exists a bidirectional causality between [X.sub.t] to [Y.sub.t], denoted as X [left and right arrow] Y. In order to test the hypotheses related to the significance or not of the sets of the coefficients of the VAR model of equation (2) and (3) the usual Wald F-statistic could be applied. The hypotheses in this test may be formulated for·mu·late tr.v. for·mu·lat·ed, for·mu·lat·ing, for·mu·lates 1. a. To state as or reduce to a formula. b. To express in systematic terms or concepts. c. as follows: [H.sub.0]: X does not Granger-cause Y, i.e. [[[alpha].sub.11], [[alpha].sub.12], ..., [[alpha].sub.1p]] = 0, if F-statistic < critical value of F. Ha: X does Granger-cause Y, i.e. [[[alpha].sub.11], [[alpha].sub.12], ..., [[alpha].sub.1p]] [not equal to] 0, if F-statistic > critical value of F. and [H.sub.0]: Y does not Granger-cause X, i.e., [[[beta].sub.21], [[beta].sub.22], ..., [[beta].sub.2q]] = 0 if F-statistic < critical value of F. Ha: Y does Granger-cause X, i.e. [[[beta].sub.21], [[beta].sub.22], ..., [[beta].sub.2q]] [not equal to] 0, if F-statistic > critical value of F. 4. EMPIRICAL RESULTS: Empirical results reported here are comprised of ADF unit root test, Johansen cointegration test and the Granger causality test. Results reported here are also intended to have some prior descriptive information on how these variables behave during our selected sample period. Graph I exhibits the behavior of U.S. trade and budget deficits from 1960 through 2003. The graph shows since the mid-seventies both the current account and the budget deficits are in the negative territory. Although the fiscal budget was surplus from mid-nineties to the end of the century but the trade deficit has consistently been rising. Table 1 provides the statistical results for ADF unit root tests for trade deficit (TB) and the Budget Deficit (BD) in levels and in first differences. Statistical results do not lead us to reject the null hypothesis of a unit root for level series. However, ADF tests statistics for first difference series show stationarity for the series. We then test for cointegration by applying the Johansen likelihood ratio test to the series from 1960 through 2003. We begin the investigation by assuming various stochastic trends (linear and the quadratic quadratic, mathematical expression of the second degree in one or more unknowns (see polynomial). The general quadratic in one unknown has the form ax2+bx+c, where a, b, and c are constants and x is the variable. deterministic 1. (probability) deterministic - Describes a system whose time evolution can be predicted exactly. Contrast probabilistic. 2. (algorithm) deterministic - Describes an algorithm in which the correct next step depends only on the current state. trends). Table 2 provides the summary of statistical results of Johansen's trace statistics and maximum Eigen value statistics assuming various trends. Applying the lag interval 1, both the trace test and the maximum eigen value test confirm one cointegrating rank at the 1 percent level of significance. Thus our results suggest the existence of long-run equilibrium relationships between the trade deficit and the budget deficit. [GRAPHIC OMITTED] We then examined the Granger causality (lead-lag) between the tarde deficit and the budget deficit. Results of pairwise Granger causality tests are reported in table 3. Here we test the null hypothesis that the trade deficit does not Granger-cause the fiscal deficit and vice versa VICE VERSA. On the contrary; on opposite sides. at the 1 percent and 5 percent significance levels from 1 to 3 years lag using the same set of data from 1960 to 2003. Contrary to the theory, our results show a strong unidirectional causality running from the trade deficit to the budget deficit. No causality has been found from the budget deficit to the trade deficit. 5. CONCLUSIONS Since the breakdown of the Breton woods system, the growing U.S. trade deficit has been a major concern among economists and policy makers. During the same period of time, it has been observed with the exception of a short period that the government's budget deficit has been rising. Economic theory attributes the trade deficit to the increase in the budget deficit, and this view is largely accepted by economists. However, the statistical evidence on the relationship between the trade deficit and the budget deficit has not yet been resolved and is ambiguous. Our paper is an attempt to find further evidence of the relationship between the budget deficit and the trade deficit by applying the cointegration and the Granger causality tests. For this purpose, the trade data are collected from the U.S. Census Bureau, Foreign Trade Division. The data on the government budget deficits are from the Executive Office of the President, Fiscal Year, 2005. The data on trade deficit and budget deficit covers the period from 1960 through 2003. Applying Johansen's cointegration tests, we find long run relationship between the budget deficit and the trade deficit. Pairwise Granger causality tests show a unidirectional causality between the trade deficit and the budget deficit. Contrary to the theory, our results show that the trade deficit "Granger Cause" the budget deficit. The future study will investigate whether there is any linkage linkage In mechanical engineering, a system of solid, usually metallic, links (bars) connected to two or more other links by pin joints (hinges), sliding joints, or ball-and-socket joints to form a closed chain or a series of closed chains. between the interest rates and the exchange rates and how there are related to the "twin deficits". In addition we will also estimate the U.S. income elasticity of imports and the foreign income elasticities of U.S. exports in order to verify the Houthakker-Magee income effect. REFERENCES: Bahmani-Oskoee., Mohsen, and Sayeed Payesteh, "Budget Deficits and the Value of the dollar: An Application of Cointegration and Error Correction Modeling", Journal of Macroeconomics macroeconomics Study of the entire economy in terms of the total amount of goods and services produced, total income earned, level of employment of productive resources, and general behaviour of prices. , vol. 15, no. 4. 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The twelfth district is made up of nine western states—Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, and Washington—plus American Samoa, Fall 1984: 5-25. Johansen, Soren. "Statistical Analysis of Cointegration Vectors." Journal of Economics Dynamics and Control 12, no. 213, 1988: 231-254. Johansen, Soren, and Katrina Juselius. "Maximum Likelihood Estimation and Interference on Cointergration With Application to the Demand for Money." Oxford Bulletin of Economics and Statistics 52, no.2. May 1990: 169-210. Krugman, Paul R. "Is the Strong Dollar Sustainable?" in The U.S. Dollar: recent Development Outlook, and the Policy options. Kansas City Kansas City, two adjacent cities of the same name, one (1990 pop. 149,767), seat of Wyandotte co., NE Kansas (inc. 1859), the other (1990 pop. 435,146), Clay, Jackson, and Platte counties, NW Mo. (inc. 1850). : federal reserve bank of Kansas City. 1985: 103-105. Krugman, Paul R. and Richard Baldwin. 1987. "the Persistence of U.S. Trade Deficit." Brookings Papers on economic Activity. 1. 1987: 1-43. Mahdavi, Saeid and Ahmad Sorabian., "The Exchange Value of the Dollar and the U.S. trade balance: An Empirical Investigation Based on Cointegration and Granger Causality Tests", The Quarterly Review of Economics and Finance, vol.33, no.4, winter, 1993: 343-358. Mohammadi, Hassan and Neil T. Skaggs. "US Fiscal Policy and Trade Deficits: A Broad Perspective", Southern Economic Journal, June 1996: 675-689. Mann, Catherine L. "U.S. Current Account Deficit and Sustainability." Journal of Economic Perspective Vol.16, No. 3--Summer 2002: 139-152.. Obstfeld, Maurice and Kenneth Rogoff Kenneth Saul Rogoff (b. 22 March 1953) is currently the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University. Early life Rogoff grew up in Rochester, New York. His father was a Professor of Radiology at the University of Rochester. , "Perspective on OECD OECD: see Organization for Economic Cooperation and Development. Economic Integration: Implications for U.S. Current Account Adjustment." Global Economic Integration: opportunities and Challenges: Kensas City: federal Reserve Bank of Kensas City. 2000: 168-209. Thorbecke, Willem. "Why deficit new a affect interest rates". Journal of Policy Modeling, vol.15, no. 1, February 1993: 1-11. Wren-Lewis, Simon and Rebecca I Driver.. "Real Exchange Rates for the Year 2000." Washington D.C., Institute for International Economics 54, 1998. Mazhar M. Islam, Alabama A&M University, Alabama, USA Eric Rahimian, Alabama A&M University, Alabama, USA AUTHORS PROFILES: Dr. Mazhar M. Islam earned his Ph.D. in International Finance from Vanderbilt University Vanderbilt University, at Nashville, Tenn.; coeducational; chartered 1872 as Central Univ. of Methodist Episcopal Church, founded and renamed 1873, opened 1875 through a gift from Cornelius Vanderbilt. Until 1914 it operated under the auspices of the Methodist Church. , Nashville, Tennessee “Nashville” redirects here. For other uses, see Nashville (disambiguation). Nashville is the capital and the second most populous city of the U.S. state of Tennessee, after Memphis. , USA. He is a professor and Director of research at school of Business, Alabama A&M University. He is also the editor of Global Review of Business and Economic Research. Dr. Eric N. Rahimian earned his Ph.D. in Economics from Indiana University Indiana University, main campus at Bloomington; state supported; coeducational; chartered 1820 as a seminary, opened 1824. It became a college in 1828 and a university in 1838. The medical center (run jointly with Purdue Univ. , Bloomington, Indiana Bloomington is a city in south central Indiana. Located about 50 miles southwest of Indianapolis, it is the seat of Monroe County. As of the 2000 U.S. Census, Bloomington had a total population of 69,291, making it the 7th largest city in Indiana. , USA. He is a professor of economics and Chair of the Department of Economics, Finance and OSM OSM Oregon Steel Mills, Inc. OSM Openstreetmap (free editable online world map) OSM Office of Surface Mining (US government) OSM Orchestre Symphonique de Montréal . He is the co-editor of Global Review of Business and Economic Research.
TABLE 1: UNIT ROOT TEST
ADF coefficients Mackinon
Variables I in levels critical value
[[tau].sub.[micro] (tau) [[tau].sub.t] (tau)
USTB -1.1068 -4.1865
USBD -3.3071 -4.1923
ADF Mackinon
Variables coefficients critical value
in first
difference
[[tau].sub.[micro] (tau) [[tau].sub.t] (tau)
USTB -3.3440 ** -2.6212
USBD -2.1051 * -1.9489
Note: "**" & "*" indicate rejection of null hypothesis of unit root at
the 1% and 5% level of significance, respectively. Mackinnon critical
value for rejection of hypothesis of a unit root has been applied at
the 1 % and the 5% level. Optimum lag structures are determined by
the Akaike and Schwarz information criteria.
TABLE 2 SUMMARY OF JOHANSEN'S COINTEGRATION TESTS
S Sample: 1960 2003
S Series: USTB USBD
L Lags interval: 1 to 1
Data None None Linear Linear Quadratic
Trend:
Rank or No Intercept Intercept Intercept Intercept
Intercept
No. of No Trend No Trend No Trend Trend Trend
CEs
Selected 5% level Number of Cointegrating Relations by Model (columns)
Trace 1 1 1 1 2
Max-Eig 1 1 1 1 2
Log Likelihood by Rank (rows) and Model (columns)
0 -1003.871 -1003.871 -1001.991 -1001.991 -997.5212
1 -986.0822 -984.7363 -984.0200 -982.7886 -981.4794
2 -984.9653 -983.5954 -983.5954 -979.4741 -979.4741
Akaike Information Criteria by Rank (rows) and Model (columns)
0 47.99384 47.99384 47.99958 47.99958 47.88196
1 47.33725 47.32078 47.33428 47.32327 47.30854 *
2 47.47454 47.50454 47.50454 47.40353 47.40353
Schwarz Criteria by Rank (rows) and Model (columns)
0 48.15934 48.15934 48.24782 48.24782 48.21295
1 47.66823 * 47.69314 47.74802 47.77837 47.80502
2 47.97102 48.08376 48.08376 48.06550 48.06550
TABLE 3 GRANGER CAUSALITY TEST
PPairwise Granger Causality Tests
SSample: 1960 2003
Lags: 1
Null Hypothesis: Obs F-Statistic Probability
USTB does not Granger Cause USBD 43 5.63768 0.02247
USBD does not Granger Cause USTB 0.00068 0.97932
Lags: 2
Null Hypothesis: Obs F-Statistic Probability
USTB does not Granger Cause USBD 42 5.94037 0.00579
USBD does not Granger Cause USTB 0.78741 0.46250
L Lags: 3
Null Hypothesis: Obs F-Statistic Probability
USTB does not Granger Cause USBD 41 10.17472 6.3E-05
USBD does not Granger Cause USTB 2.08511 0.12048
L Lags: 4
Null Hypothesis: Obs F-Statistic Probability
USTB does not Granger Cause USBD 40 8.09936 0.00014
USBD does not Granger Cause USTB 1.48914 0.22948
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