Detecting and testing causality in linear econometric models

Journal of the Italian Statistical Society volume 3, pages61–76(1994)Cite this article

Summary

The ultimate objective of this paper is to arrive at an operational testing procedure enabling us to diagnose the causal or non-causal nature of an econometric relationship in a linear framework. The profferred approach to the problem relies on a close examination of causal issues in simultaneous equation models and on a sensible definition of the bidirectionality concept inherently associated with feedback mechanisms.

After recalling the essentials of causal structure's algebra, the article:

  1. i)

    provides a closed-form expression, in terms of a Hadamard product of forward and backward (i.e., feedback) effects, for two-way connections among the variables of a linear equation;

  2. ii)

    sets the issue of verifying a causality conjecture regarding a model's relationship in the context of significance test theory;

  3. iii)

    builds up, in a constrained maximum-likelihood setting, an effective causality test of the Lagrange-multipler (scoring) class.

This is a preview of subscription content, log in to check access.

References

  1. Aigner D. J. andA. Zellner, eds. (1988), Causality,A supplement to the Journal of Econometrics, Annals 1988/3.

  2. Ancot J. P., ed. (1984),Analysing the Structure of Econometric Models, The Hague, Nijhoff.

    Google Scholar 

  3. Bentzel R. andB. Hansen (1954), On recursiveness and interdependency in economic models,Review of Economic Studies, XXII, 153–168.

    Google Scholar 

  4. Breusch T. S. andA. R. Pagan (1980), The Lagrange multipler test and its applications to model specifications in econometrics,Review of Economic Studies, XLVII, 239–253.

    MathSciNet  Google Scholar 

  5. Cappuccio N. andR. Orsi (1991),Econometria, Il Mulino, Bologna.

    Google Scholar 

  6. Carlucci F., ed. (1985),Analisi della causalità e modelli econometrici, 2 voll., ISCO, Roma.

    Google Scholar 

  7. Dagum C. (1969), Structural performance,Zeitschrift fur die Gesamte Staatswissenschaft, 211–235.

  8. D'Azzo J. andC. H. Houpis (1966),Feedback Control System Analysis and Synthesis, Mc-Graw Hill, New York.

    Google Scholar 

  9. Engle F. (1982), A general approach to Lagrange multipler model diagnosis,Journal of Econometrics, 20, 83–104.

    MATH  Article  MathSciNet  Google Scholar 

  10. Faliva M. (1987),Econometria: Principi e Metodi, UTET, Torino.

    Google Scholar 

  11. Faliva M. (1991), L'analisi dei modelli econometrici nell'ambito della teoria dei sistemi, in M. Faliva ed.,Il ruolo dell'econometria nell'ambito delle scienze economiche, 115–126, Il Mulino, Bologna.

    Google Scholar 

  12. Faliva M. (1992), Recursiveness vs. interdependence in linear econometric models: a comprehensive analysis for the linear case,Journal of the Italian Statistical Society, I, 335–357.

    Google Scholar 

  13. Faliva M. (1994), Causality and interdependence in linear econometric models,forthcoming.

  14. Godfrey L. G. (1988),Misspecification Tests in Econometrics, Cambridge University Press, New York.

    Google Scholar 

  15. Gilli M. (1992), Causal ordering and beyond,International Economic Review, 33, 957–965.

    Article  MathSciNet  Google Scholar 

  16. Granger C. W. J. (1980), Testing for causality: a personal viewpoint,Journal of Economic Dynamics and Control, 2, 329–352.

    Article  MathSciNet  Google Scholar 

  17. Hausman J. A. (1978), Specification tests in econometrics,Econometrica, 46, 1251–1271.

    MATH  Article  MathSciNet  Google Scholar 

  18. Joreskog K. G. andH. Wold, eds. (1982),Systems under Indirect Observation, 2 voll., North-Holland, Amsterdam.

    Google Scholar 

  19. Mosbaek E. andH. Wold (1970),Interdependent Systems: Structure and Estimation, North-Holland, Amsterdam.

    Google Scholar 

  20. Pasinetti L. (1965), Causalità ed interdipendenza nell'analisi econometrica e nella teoria economica,Annali Università Cattolica A.A., 1964–65, 233–250, Vita e Pensiero, Milano.

    Google Scholar 

  21. Rossier E. (1980),Economie structurale, Economica, Parigi.

    Google Scholar 

  22. Smith R. J. (1985), Wald tests for the independence of stochastic variables and disturbance of a single linear stochastic simultaneous equation,Economic letters, 17, 87–90.

    Article  Google Scholar 

  23. Strotz H. andH. Wold (1960), Recursive vs. non recursive systems: an attempt at synthesis;Econometrica, 28, 417–427.

    Article  MathSciNet  Google Scholar 

  24. Wold H. (1964a),Econometric Model Building, North-Holland, Amsterdam.

    Google Scholar 

  25. Wold H. (1964b),La technique des modèles, Science Humaines, Monaco.

    Google Scholar 

  26. Wu De-Min (1973), Alternative tests of independence between stochastic regresors and disturbances,Econometrica, 41, 733–750.

    MATH  Article  MathSciNet  Google Scholar 

  27. Zellner A. (1979), Causality and econometrics, inK. Brunner andMeltzer A. H., eds.,Three Aspects of Policy and Policy Making, 9–54, North-Holland, Amsterdam.

    Google Scholar 

  28. Zoia M. G. (1994), ANRINT/1: Software per l'analisi dei meccanismi ricorsivi ed interdipendenti dei modelli econometrici,Contributi di Ricerca in Econometria, 94.02, Università Cattolica, Milano.

    Google Scholar 

Download references

Author information

Affiliations

  1. Università Cattolica di Milano, Milano, Italy

    Mario Faliva & M. Grazia Zoia

Authors
  1. Mario Faliva
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. M. Grazia Zoia
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

Invited paper at the Conference held in Bologna, Italy, 27–28 May 1993, on «Statistical Tests: Methodology and Econometric Applications».

Support from the Italian Research Council (CNR) is gratefully acknowledged. The paper is the result of a joint research of M. Faliva and M. G. Zoia. The two authors share the responsability for Section 3; Sections 1 and 2 are due to M. Faliva and Section 4 is due to M. G. Zoia.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Faliva, M., Zoia, M.G. Detecting and testing causality in linear econometric models. J. It. Statist. Soc. 3, 61–76 (1994). https://doi.org/10.1007/BF02589041

Download citation

Keywords

  • causality test
  • causal structure analysis
  • two-way effects in linear models