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Looking behind Granger causality

By Pu Chen and Chih-Ying Hsiao

Abstract

Granger causality as a popular concept in time series analysis is widely applied in empirical research. The interpretation of Granger causality tests in a cause-effect context is, however, often unclear or even controversial, so that the causality label has faded away. Textbooks carefully warn that Granger causality does not imply true causality and preferably refer the Granger causality test to a forecasting technique. Applying theory of inferred causation, we develop in this paper a method to uncover causal structures behind Granger causality. In this way we re-substantialize the causal attribution in Granger causality through providing an causal explanation to the conditional dependence manifested in Granger causality.

Topics: C1 - Econometric and Statistical Methods and Methodology: General, E3 - Prices, Business Fluctuations, and Cycles
Year: 2010
OAI identifier: oai:mpra.ub.uni-muenchen.de:24859

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