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Causal misspecifications in econometric models

We bridge together the graph-theoretic and the econometric approach for defining causality in statistical models to consider model misspecification problems. By presenting a solution to disagreements between the existing frameworks, we build a causal framework that allows us to express causal implications of econometric model specifications. This allows us to reveal possible inconsistencies in models used for policy analysis. In particular, we show how a common practice of doing policy analysis with vector error-correction models fails. As an example, we apply these concepts to discover fundamental flaws in a resent strand of literature estimating the carbon Kuznetz curve, which postulates that carbon dioxide emissions initially increase with economic growth but that the relationship is eventually reversed. Due to a causal misspecification, the compatibility between climate and development policy goals is overstated.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31397.

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Date of creation: 27 May 2011
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Handle: RePEc:pra:mprapa:31397
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  1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  2. Soytas, Ugur & Sari, Ramazan, 2009. "Energy consumption, economic growth, and carbon emissions: Challenges faced by an EU candidate member," Ecological Economics, Elsevier, vol. 68(6), pages 1667-1675, April.
  3. Iwata, Hiroki & Okada, Keisuke & Samreth, Sovannroeun, 2009. "Empirical Study on the Environmental Kuznets Curve for CO2 in France: The Role of Nuclear Energy," MPRA Paper 18997, University Library of Munich, Germany.
  4. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
  5. Sari, Ramazan & Soytas, Ugur, 2007. "The growth of income and energy consumption in six developing countries," Energy Policy, Elsevier, vol. 35(2), pages 889-898, February.
  6. Leamer, Edward E., 1985. "Vector autoregressions for causal inference?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 255-304, January.
  7. Kaufmann, Robert K., 1992. "A biophysical analysis of the energy/real GDP ratio: implications for substitution and technical change," Ecological Economics, Elsevier, vol. 6(1), pages 35-56, July.
  8. Ewing, Bradley T. & Sari, Ramazan & Soytas, Ugur, 2007. "Disaggregate energy consumption and industrial output in the United States," Energy Policy, Elsevier, vol. 35(2), pages 1274-1281, February.
  9. Soytas, Ugur & Sari, Ramazan & Ewing, Bradley T., 2007. "Energy consumption, income, and carbon emissions in the United States," Ecological Economics, Elsevier, vol. 62(3-4), pages 482-489, May.
  10. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  11. Pao, Hsiao-Tien & Tsai, Chung-Ming, 2010. "CO2 emissions, energy consumption and economic growth in BRIC countries," Energy Policy, Elsevier, vol. 38(12), pages 7850-7860, December.
  12. Jalil, Abdul & Mahmud, Syed F., 2009. "Environment Kuznets curve for CO2 emissions: A cointegration analysis for China," Energy Policy, Elsevier, vol. 37(12), pages 5167-5172, December.
  13. Pearl, Judea, 2003. "Comments On Neuberg'S Review Of Causality," Econometric Theory, Cambridge University Press, vol. 19(04), pages 686-689, August.
  14. Richmond, Amy K. & Kaufmann, Robert K., 2006. "Is there a turning point in the relationship between income and energy use and/or carbon emissions?," Ecological Economics, Elsevier, vol. 56(2), pages 176-189, February.
  15. Jalil, Abdul & Feridun, Mete, 2011. "The impact of growth, energy and financial development on the environment in China: A cointegration analysis," Energy Economics, Elsevier, vol. 33(2), pages 284-291, March.
  16. Matzkin, Rosa L., 2007. "Nonparametric identification," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 73 Elsevier.
  17. A. Simon, Herbert & Iwasaki, Yumi, 1988. "Causal ordering, comparative statics, and near decomposability," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 149-173.
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