Christmas cards,Easter bunnies,and Granger-causality |
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Authors: | Erdal Atukeren |
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Institution: | (1) ETH Zurich, KOF-Swiss Institute for Business Cycle Research, WEH D4, Weinbergstrasse 35, Zürich, CH-8092, Switzerland |
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Abstract: | This paper takes a closer look at the conceptual grounds of the notion of causality in Granger’s sense. We start with the
often jokingly made remark that ‘Christmas card sales Granger-cause Christmas’. Then, we extend the example to the more challenging
case of chocolate Easter bunny sales and Easter. We show that any references to Granger-causality in these cases are due to
the misinterpretation of the concept. Moving further on methodological grounds, we argue that the concept of Granger-causality
calls for a multivariate framework of analysis. This is because taking all available relevant information into account is
indeed required in Granger’s definition of causality. This is also in line with rational behaviour and learning under imperfect
and incomplete information. The implications of employing a multivariate framework of analysis is discussed in terms of the
additional insights it brings; namely, direct, indirect, and spurious cases of Granger-causality. Finally, we examine the
semantics of the definition of causality in Granger’s sense.
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Keywords: | Semantics of Granger-causality Granger-Hsiao direct causality Econometric methodology |
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