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Original Articles

Non-causality due to irrelevant lag polynomials

Pages 17-20 | Published online: 05 Oct 2010
 

Abstract

This letter illustrates that Granger causality tests tend to be sensitive to irrelevant lag polynomials and could lead to wrong inference of non-causality. In view of the little insight one gets from economic theory about short-run dynamics, it suggests exclusion restrictions prior to causality testing.

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