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The Impossibility of Causality Testing

Author

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  • Conway, Roger K.
  • Swamy, P. A. V. B.
  • Yanagida, John F.
  • Muehlen, Peter von zur

Abstract

Causality tests developed by Sims and Granger are fatally flawed for several reasons First, when two variables, X and Y, are uncorrelated, X has no linear predictive value for Y, but X,and Y may be nonlinearly related unless they are statistically Independent, In which case X and Y are not related at all The light-hand side variables In a regression equation are exogenous If they are mean Independent of the disturbance term Mean Independence IS stronger than uncorrelatedness The proofs for deriving causality-exogenity tests Imply weaker results than statistical or mean Independence Second, transformations such as the Box-Cox transformation and Box Jenkins stationarity-inducing transformations are not causality preserving Third, counterexamples constructed by Price have invalidated the Pierce, Haugh theorem on Instantaneous causality Fourth, omission of other variables influencing those tested renders any test results Spurious Finally, causality tests are inconsistent because ,they are based on underidentified models We provide a logically valid method of building models which does not use causality tests

Suggested Citation

  • Conway, Roger K. & Swamy, P. A. V. B. & Yanagida, John F. & Muehlen, Peter von zur, 1984. "The Impossibility of Causality Testing," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, vol. 36(3), pages 1-19.
    • Handle: RePEc:ags:uersja:149081
    DOI: 10.22004/ag.econ.149081
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    Cited by:

    1. Ana Claudia Sant’Anna & Ani L. Katchova, 2020. "Determinants of land value volatility in the U.S. Corn Belt," Applied Economics, Taylor & Francis Journals, vol. 52(37), pages 4058-4072, July.
    2. Digal, Larry N. & Ahmadi-Esfahani, Fredoun Z., 2002. "Market power analysis in the retail food industry: a survey of methods," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), pages 1-26.
    3. Mariusz Maziarz, 2015. "A review of the Granger-causality fallacy," The Journal of Philosophical Economics, Bucharest Academy of Economic Studies, The Journal of Philosophical Economics, vol. 8(2), May.
    4. Abdur R. Chowdhury, 1991. "A Causal Analysis of Defense Spending and Economic Growth," Journal of Conflict Resolution, Peace Science Society (International), vol. 35(1), pages 80-97, March.
    5. Blank, Steven C. & Schmiesing, Brian H., 1985. "Combining Casuality Tests and Path Analysis to Model Agricultural Markets," Economics Staff Papers 232160, South Dakota State University, Department of Economics.
    6. Lundström, Susanna, 2003. "Effects of Economic Freedom on Growth and the Environment - Implications for Cross-Country Analysis," Working Papers in Economics 115, University of Gothenburg, Department of Economics.
    7. Michael Marlow & Neela Manage, 1987. "Expenditures and receipts: Testing for causality in state and local government finances," Public Choice, Springer, vol. 53(3), pages 243-255, January.
    8. Parrott, Scott D. & Eastwood, David B., 1998. "Incorporating Seasonality, Product Volume, And Shiller Lags Into A Price Linkage Model," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20837, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Parrott, Scott D. & Eastwood, David B. & Brooker, John R., 2001. "Testing For Symmetry In Price Transmission: An Extension Of The Shiller Lag Structure With An Application To Fresh Tomatoes," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 19(1), pages 1-15.
    10. Michael Marlow & Neela Manage, 1988. "Expenditures and receipts in state and local government finances: Reply," Public Choice, Springer, vol. 59(3), pages 287-290, December.
    11. Knapp, Tom & Mookerjee, Rajen, 1996. "Population growth and global CO2 emissions : A secular perspective," Energy Policy, Elsevier, vol. 24(1), pages 31-37, January.
    12. Blank, Steven C, 1987. "Evaluating International Price Relationships Using Causal Models," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 14(3), pages 305-323.
    13. Riechers, Robin & Hinson, Roger A., 1988. "Price Relationships Between Regionally Important Fresh Vegetable Markets," Journal of Food Distribution Research, Food Distribution Research Society, vol. 19(2), pages 1-9, September.
    14. Sarker, Rakhal, 1990. "Testing Causality in Economics: A Review," Department of Agricultural Economics and Business 258629, University of Guelph.

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