Temporal Aggregation, Causality Distortions, and a Sign Rule

Tilak Abeysinghe () and Gulasekaran Rajaguru
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Gulasekaran Rajaguru: Bond University

Departmental Working Papers from National University of Singapore, Department of Economics

Abstract: Temporally aggregated data is a bane for Granger causality tests. The same set of variables may lead to contradictory causality inferences at different levels of temporal aggregation. Obtaining temporally disaggregated data series is impractical in many situations. Since cointegration is invariant to temporal aggregation and implies Granger causality this paper proposes a sign rule to establish the direction of causality. Temporal aggregation leads to a distortion of the sign of the adjustment coefficients of an error correction model. The sign rule works better with highly temporally aggregated data. The practitioners, therefore, may revert to using annual data for Granger causality testing instead of looking for quarterly, monthly or weekly data. The method is illustrated through three applications.

Keywords: Granger causality test; cointegration; error correction model; adjustment coefficient; sign rule (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Date: 2003-12
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Related works:
Working Paper: Temporal aggregation, causality distortions and a sign rule (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:nus:nusewp:wp0406

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