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=XY10X 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.①Price of commodity and quantity of commodity sold. ②Does money SS cause changes in interest rate or the other way round? ③Is C = f (Y) or Y = f (C)? Consider the following structural model yt = σxt + β11yt-1 + β12xt-1 + є1txt = γyt +β21yt-1 +β22xt-1 +є2tH1: γ= β21 = 0 (Current and past influences of y do not affect x) H2: γ= 0 (Current influence of y does not affect x) endogeneity exogeneity Clive Granger 1969 article in Econometrica1
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