Looking behind Granger causality

Chen, Pu and Hsiao, Chih-Ying (2010): Looking behind Granger causality.

Abstract

Granger causality as a popular concept in time series analysis is widely applied in empirical research. The interpretation of Granger causality tests in a cause-effect context is, however, often unclear or even controversial, so that the causality label has faded away. Textbooks carefully warn that Granger causality does not imply true causality and preferably refer the Granger causality test to a forecasting technique. Applying theory of inferred causation, we develop in this paper a method to uncover causal structures behind Granger causality. In this way we re-substantialize the causal attribution in Granger causality through providing an causal explanation to the conditional dependence manifested in Granger causality.

• Item Type: MPRA Paper
• Language: English
• Keywords: Granger Causality; Time Series Causal Model; Graphical Model
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

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