Temporal Aggregation, Causality Distortions, and a Sign Rule
Temporally aggregated data is a bane for Granger causality tests. The same set of variables may lead to contradictory causality inferences at different levels of temporal aggregation. Obtaining temporally disaggregated data series is impractical in many situations. Since cointegration is invariant to temporal aggregation and implies Granger causality this paper proposes a sign rule to establish the direction of causality. Temporal aggregation leads to a distortion of the sign of the adjustment coefficients of an error correction model. The sign rule works better with highly temporally aggregated data. The practitioners, therefore, may revert to using annual data for Granger causality testing instead of looking for quarterly, monthly or weekly data. The method is illustrated through three applications.
|Date of creation:||Dec 2003|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.fas.nus.edu.sg/ecs/index.html|
More information through EDIRC
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.:
- Pierse, R. G. & Snell, A. J., 1995. "Temporal aggregation and the power of tests for a unit root," Journal of Econometrics, Elsevier, vol. 65(2), pages 333-345, February.
- Bergstrom, A. R. & Nowman, K. B. & Wandasiewicz, S., 1994. "Monetary and fiscal policy in a second-order continuous time macroeconometric model of the United Kingdom," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 731-761.
- Clive W. J. Granger, 1988. "Aggregation of time series variables-a survey," Discussion Paper / Institute for Empirical Macroeconomics 1, Federal Reserve Bank of Minneapolis.
- Rajaguru GULASEKARAN & Tilak ABEYSINGHE, 2002. "The Distortionary Effects Of Temporal Aggregation On Granger Causality," Departmental Working Papers wp0204, National University of Singapore, Department of Economics.
- Huang, Chao-Hsi & Lin, Kenneth S., 1993. "Deficits, government expenditures, and tax smoothing in the United States: 1929-1988," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 317-339, June.
- Chambers, Marcus J., 1999. "Discrete time representation of stationary and non-stationary continuous time systems," Journal of Economic Dynamics and Control, Elsevier, vol. 23(4), pages 619-639, February.
- Neil R. Ericsson & John S. Irons & Ralph W. Tryon, 2000.
"Output and inflation in the long run,"
International Finance Discussion Papers
687, Board of Governors of the Federal Reserve System (U.S.).
- Granger, C.W.J. & Siklos, P.L., 1993.
"Systematic Sampling, Temporal Aggregation, Seasonal Adjustment, and Cointegration: Theory and Evidence,"
93001, Wilfrid Laurier University, Department of Economics.
- Granger, C. W. J. & Siklos, Pierre L., 1995. "Systematic sampling, temporal aggregation, seasonal adjustment, and cointegration theory and evidence," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 357-369.
- repec:cup:cbooks:9780521002882 is not listed on IDEAS
- In Choi & Bhum Suk Chung, 1995. "Sampling frequency and the power of tests for a unit root: A simulation study," Economics Letters, Elsevier, vol. 49(2), pages 131-136, August.
- Grayham E. Mizon & David F. Hendry, 1998. "Exogeneity, causality, and co-breaking in economic policy analysis of a small econometric model of money in the UK," Empirical Economics, Springer, vol. 23(3), pages 267-294.
- Peter C.B. Phillips, 1988.
"Error Correction and Long Run Equilibrium in Continuous Time,"
Cowles Foundation Discussion Papers
882R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
- Phillips, P C B, 1991. "Error Correction and Long-Run Equilibrium in Continuous Time," Econometrica, Econometric Society, vol. 59(4), pages 967-80, July.
- repec:cup:cbooks:9780521452175 is not listed on IDEAS
- 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.
- Kevin Hoover & Selva Demiralp, 2003. "Searching for the Causal Structure of a Vector Autoregression," Working Papers 33, University of California, Davis, Department of Economics.
- Lahiri, Kajal & Mamingi, Nlandu, 1995. "Testing for cointegration: Power versus frequency of observation -- another view," Economics Letters, Elsevier, vol. 49(2), pages 121-124, August.
- Mizon, Grayham E & Hendry, David F, 1980. "An Empirical Application and Monte Carlo Analysis of Tests of Dynamic Specification," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 21-45, January.
- Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
- Mamingi, Nlandu, 1996. "Aggregation over time, error correction models and Granger causality: A Monte Carlo investigation," Economics Letters, Elsevier, vol. 52(1), pages 7-14, July.
- 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.
- Franses, Philip Hans & Boswijk, H. Peter, 1996. "Temporal aggregation in a periodically integrated autoregressive process," Statistics & Probability Letters, Elsevier, vol. 30(3), pages 235-240, October.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
- Marcellino, Massimiliano, 1999. "Some Consequences of Temporal Aggregation in Empirical Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 129-36, January.
- Sahasakul, Chaipat, 1986. "The U.S. evidence on optimal taxation over time," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 251-275, November.
- Ghosh, Atish R, 1995. "Intertemporal Tax-Smoothing and the Government Budget Surplus: Canada and the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1033-45, November.
- Mosconi, Rocco & Giannini, Carlo, 1992. "Non-causality in Cointegrated Systems: Representation Estimation and Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 399-417, August.
- Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
When requesting a correction, please mention this item's handle: RePEc:nus:nusewp:wp0406. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.