Effects of simultaneity on testing Granger-causality: A cautionary note about statistical problems and economic misinterpretations

Arbeitspapier

Interpreting Granger causality as economic causality implies that the underlying VAR model is a structural economic model. However, this is wrong if simultaneity occurs. Magnitude and stability of possible errors are analysed in a simulation study. It is shown that economic misinterpretations of tests of Granger causality can occur with probability one for realistic parameter values. Furthermore, the power of the test can be rather low even with a sample size of T=50.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 93

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• Subject: Granger causality ; test ; simultaneity ; instantaneous causality ; Kausalanalyse ; Statistischer Test ; Simultanes Gleichungssystem ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Wilde, Joachim
• Event: Veröffentlichung
• (who): Osnabrück University, Institute of Empirical Economic Research
• (where): Osnabrück
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/66508
• Last update: 10.03.2025, 11:44 AM CET