Itkonen, Juha (2011): Causal misspecifications in econometric models. Published in: HECER Discussion Paper No. No 327

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Abstract
We bridge together the graphtheoretic 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 errorcorrection 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.
Item Type:  MPRA Paper 

Original Title:  Causal misspecifications in econometric models 
Language:  English 
Keywords:  Causality, Policy evaluations, Energy consumption, Carbon dioxide emissions, Economic growth, Environmental Kuznets curve. 
Subjects:  C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C50  General Q  Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5  Environmental Economics > Q54  Climate; Natural Disasters; Global Warming Q  Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4  Energy > Q43  Energy and the Macroeconomy 
Item ID:  31397 
Depositing User:  Juha Itkonen 
Date Deposited:  10. Jun 2011 15:40 
Last Modified:  12. Feb 2013 10:35 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/31397 