Simulation Evidence on Granger Causality in Presence of a Confounding Variable
This paper provides simulation evidence on Granger causality between two variables when they are jointly caused by a third variable. Four Data Generating Processes (DGPs) are considered for testing causality by Granger method and two DGPs for testing causality by Toda and Yamamoto (1995) procedure. Our simulation involve three variables but causality has been tested only between two variable and the third variable (the real cause) has been ignored to show that its association which matters in these causality tests. Nevertheless, if we know that there are only two variables in economic dynamics and the true model is known then these causality tests work fine and for this we have carried out bootstrap simulation.
Volume (Year): 5 (2008)
Issue (Month): 2 ()
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Toda, Hiro Y & Phillips, Peter C B, 1993.
"Vector Autoregressions and Causality,"
Econometric Society, vol. 61(6), pages 1367-93, November.
- Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
- Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
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