Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Testing for Granger causality in the presence of measurement errors
Abstract: In this paper a potential problem with tests for
Granger-causality is investigated. If one of the two variables under study,
but not the other, is measured with error the consequence is that tests of
forecastablity of the variable without measurement error by the variable
with measurement error will be rejected less often than it should. Since
this is not the case for the test of forecastability of the variable with
measurement error by the one without there is a danger of concluding that
one variable leads the other while it is in fact a feed-back relationship.
The problem is illustrated by an example.
Keywords: Granger causality; measurement error; (follow links to similar papers)
JEL-Codes: C32; (follow links to similar papers)
7 pages, September 24, 2004
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