In the context of econometrics, what doesestablishing Granger causality between twovariables imply?A. There is a long-term equilibrium relationshipbetween the variables.B. Past values of one variable can be used topredict the future values of another variable.C. There is a theoretical economic relationshipbetween the variables.D. The variables are correlated.

Granger causality is a statistical hypothesis test used in econometrics to determine whether one…

In the context of econometrics, what does establishing Granger causality between two variables imply? A. There is a long-term equilibrium relationship between the variables. D Doot volugo of. vo variahlo oon ho wood to

In the context of econometrics, what does establishing Granger causality between two variables imply? A. There is a long-term equilibrium relationship between the variables. D Doot volugo of. vo variahlo oon ho wood to

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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A: Answer in Step 2

Question

In the context of econometrics, what does
establishing Granger causality between two
variables imply?
A. There is a long-term equilibrium relationship
between the variables.
B. Past values of one variable can be used to
predict the future values of another variable.
C. There is a theoretical economic relationship
between the variables.
D. The variables are correlated.

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Step 1: Definition of Granger Causality :

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Step 2: Set of Hypothesis:

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Solution

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Step 3: Choose significance level :

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Step 4: Collect time series data :

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Step 5: Time lag selection :

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Step 6: Estimate models :

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Step 7: Conduct F-test :

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Step 8: Interpret result :

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Step 9: Caution :

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Step 10: Explanation of wrong options :

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