GrangerCausality

GrangerCausality - ECON3300/7360 GRANGER CAUSALITY...

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ECON3300/7360 GRANGER CAUSALITY References: - The few pages on Causality (look under Contents page or the Index) in Ramanathan's Introductory Econometrics with Applications . - Pg 425-427 of the Mukerjee Text. ε + β + β = X Y 1 0 X causes Y To check if X causes Y (but not estimate the effect) Granger Causality Test If X causes Y and Y causes X feedback effects, bi-directional causality X and Y are jointly determined. E.g. Price of commodity and quantity of commodity sold. Does money SS cause changes in interest rate or the other way round? Is C = f (Y) or Y = f (C)? Consider the following structural model y t = σ x t + β 11 y t-1 + β 12 x t-1 + є 1t x t = γ y t + β 21 y t-1 + β 22 x t-1 + є 2t H 1 : γ = β 21 = 0 (Current and past influences of y do not affect x) H 2 : γ = 0 (Current influence of y does not affect x) endogeneity exogeneity Clive Granger 1969 article in Econometrica 1
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If γ ǂ 0 contemporeneous correlation between x and y i.e. x t and y t are correlated. Note
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This note was uploaded on 03/13/2010 for the course ECON econ1010 taught by Professor Margretfinch during the Three '08 term at Griffith.

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GrangerCausality - ECON3300/7360 GRANGER CAUSALITY...

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