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The Distortionary Effects Of Temporal Aggregation On Granger Causality

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  • Rajaguru GULASEKARAN

    (National University of Singapore)

  • Tilak ABEYSINGHE

    ()
    (National University of Singapore)

Abstract

Economists often have to use temporally aggregated data in causality tests. A number of theoretical studies have pointed out that temporal aggregation has distorting effects on causal inference. This paper provides a quantitative assessment of the magnitude of the distortions created by temporal aggregation by plugging in theoretical cross covariances into the limiting values of least squares estimates. Some Monte Carlo results and an application are provided to assess the impact in small samples. It is observed that in general the most distorting causal inferences are likely at low levels of temporal aggregation. At high levels of aggregation, causal information concentrates in contemporaneous correlations. At present, a data-based approach is not available to establish the direction of causality between contemporaneously correlated variables.

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Bibliographic Info

Paper provided by National University of Singapore, Department of Economics in its series Departmental Working Papers with number wp0204.

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Length: 32 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:nus:nusewp:wp0204

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Citations

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Cited by:
  1. Tilak Abeysinghe & Gulasekaran Rajaguru, 2004. "Temporal aggregation, causality distortions and a sign rule," Econometric Society 2004 Australasian Meetings 73, Econometric Society.
  2. Gulasekaran Rajaguru & Tilak Abeysinghe, 2009. "A Gaussian Test for Cointegration," SCAPE Policy Research Working Paper Series 0905, National University of Singapore, Department of Economics, SCAPE.
  3. Tilak Abeysinghe & Gu Jiaying, 2009. "Does the IV estimator establish causality? Re-examining Chinese fertility-growth relationship," Microeconomics Working Papers 22758, East Asian Bureau of Economic Research.
  4. Kucukkale, Yakup & Yamak, Rahmi, 2012. "Cointegration, causality and Wagner’s law with disaggregated data: evidence from Turkey, 1968-2004," MPRA Paper 36894, University Library of Munich, Germany.

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