Testing for causality in the presence of leading variables
AbstractThis paper provides useful guidelines to practitioners who investigate causality-in-mean and/or causality-in-variance within a system of more than two variables by means of the two-step procedure proposed by Cheung and Ng (Journal of Econometrics, 1996) and modified by Hong (Journal of Econometrics, 2001). Specifically, this study highlights cases that can mislead the researcher into reporting false causal relations among the variables under scrutiny. The results of Monte Carlo simulations reveal the seriousness of the problem.
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