Granger Causality and the Sampling of Economic Processes

CentER Discussion Paper No. 2004-39

31 Pages Posted: 24 Jun 2004

See all articles by Marcus J. Chambers

Marcus J. Chambers

University of Essex

Roderick McCrorie

University of London - School of Economics and Finance

Date Written: 2004

Abstract

This paper provides a discussion of the developments in econometric modelling that are designed to deal with the problem of spurious Granger causality relationships that can arise from temporal aggregation. We outline the distortional effects of using discrete time models that explicitly depend on the unit of time and outline a remedy of constructing timeinvariant discrete time models via a structural continuous time model. In an application to testing for money-income causality, we demonstrate the importance of incorporating exact temporal aggregation restrictions on the discrete time data. We do this by conducting causality tests in discrete time models that: (a) impose the temporal aggregation restrictions exactly; (b) impose the temporal aggregation restrictions approximately; and (c) do not impose these restrictions at all.

Keywords: Granger causality, temporal aggregation

JEL Classification: C32

Suggested Citation

Chambers, Marcus J. and McCrorie, Roderick, Granger Causality and the Sampling of Economic Processes (2004). CentER Discussion Paper No. 2004-39, Available at SSRN: https://ssrn.com/abstract=557834 or http://dx.doi.org/10.2139/ssrn.557834

Marcus J. Chambers

University of Essex

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Roderick McCrorie (Contact Author)

University of London - School of Economics and Finance ( email )

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