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Title:Effects of simultaneity on testing Granger-causality: A cautionary note about statistical problems and economic misinterpretations PDF Logo
Authors:Wilde, Joachim
Issue Date:2012
Series/Report no.:Working Paper, Institute of Empirical Economic Research, University of Osnabrück 93
Abstract:Interpreting Granger causality as economic causality implies that the underlying VAR model is a structural economic model. However, this is wrong if simultaneity occurs. Magnitude and stability of possible errors are analysed in a simulation study. It is shown that economic misinterpretations of tests of Granger causality can occur with probability one for realistic parameter values. Furthermore, the power of the test can be rather low even with a sample size of T=50.
Subjects:Granger causality
test
simultaneity
instantaneous causality
JEL:C32
Document Type:Working Paper
Appears in Collections:Working Papers, Institut für Empirische Wirtschaftsforschung, Universität Osnabrück

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