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Disproving Causal Relationships Using Observational Data

  • Bryant, Henry L.
  • Bessler, David A.
  • Haigh, Michael S.

Economic theory is replete with causal hypotheses that are scarcely tested because economists are generally constrained to work with observational data. This article describes the use of causal inference methods for testing a hypothesis that one random variable causes another. Contingent on a sufficiently strong correspondence between the hypothesized cause and effect, an appropriately related third variable can be employed for such a test. The procedure is intuitive, and is easy to implement. The basic logic of the procedure naturally suggests strong and weak grounds for rejecting the hypothesized causal relationship. Monte Carlo results suggest that weakly-grounded rejections are unreliable for small samples, but reasonably reliable for large samples. Strongly-grounded rejections are highly reliable, even for small samples.

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File URL: http://purl.umn.edu/21166
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21166.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21166
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  1. Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
  2. Selva Demiralp & Kevin D. Hoover & Stephen J. Perez, 2008. "A Bootstrap Method for Identifying and Evaluating a Structural Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(4), pages 509-533, 08.
  3. Swanson, N.R. & Granger, C.W.J., 1994. "Impulse Response Functions Based on Causal Approach to Residual Orthogonalization in Vector Autoregressions," Papers 9-94-1, Pennsylvania State - Department of Economics.
  4. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December.
  5. Hoover, Kevin D., 2005. "Automatic Inference Of The Contemporaneous Causal Order Of A System Of Equations," Econometric Theory, Cambridge University Press, vol. 21(01), pages 69-77, February.
  6. repec:cup:cbooks:9780521002882 is not listed on IDEAS
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