Testing for Granger causality in the presence of measurement errors

Jonas Andersson

No 2004/11, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

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 (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2004-09-24
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Journal Article: Testing for Granger causality in the presence of measurement errors (2005)
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