# Case 6.5 Granger Causality

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6.5 Granger Causality

Granger causality statistics determine whether past values of one variable helps to predict another variable. For example, if the lagged value of the independent variable X, help in predicting the value of the explanatory variable Y_(t+1), then X granger causes the Y. On the other hand, if the independent variable X does not help to predict Y, then the coefficients on the lags of X will all be zero in the reduced form Y equation.

7. Empirical results

7.1 Optimal lag length selection tests

Before testing for the relationship among the selected variables, the optimal lag length is determined. The current study uses three different information criterion procedures, Akaike information criterion (AIC), Schwarz information criterion (SBIC) and Hannan-Quinn information criterion (HQIC), in order to get the optimal lag length. Too many lags could increase the error in the forecasts; too few could leave out relevant information (Stock and Watson, 2007).

Table 2, presents the results from the optimal lag length selection tests, for the variables private net savings, government net savings rate, GDP per capita growth, young dependency ratio, old dependency ratio, inflation growth rate, liabilities growth rate and interest rate, proxied as the long term government bond yield.

Lags AIC SBIC HQIC
1 -28.6713 -28.459
Due to the fact that the disturbances may be contemporaneously correlated, these functions do not explain how variable i reacts to a one time increase in the innovation to variable j after t periods, holding everything else constant. In order to explain this, the orthogonalized ordering of exogenous shocks is applied so that the assumption to hold everything else constant is reasonable. Unrestricted VARs use a Cholesky decomposition to orthogonalize the disturbances and thereby obtain structurally interpretable

• ## Inventory Control Case Study

The objective is to determine the optimum values of lot size and shortage period, which maximizes the expected average profit. Shah and Soni  proposed a multi-objective production inventory model with backorder for fuzzy random demand under flexibility and reliability of production process, the objective is to maximize the total expected profit incurred in each production cycle which is optimized using a multi-objective genetic algorithm (MOGA). Tripathy and Pattnaik  developed a model in a more general way to the work of Cheng , Tripathy et al. , Tripathy and Pattnaik , and assuming that demand exceeds supply, but the unit cost of production is inversely related to process reliability and directly related to the demand rate by a power function. Numerical example gives that this situation makes saving in the unit production cost than proposed by Tripathy et al.…

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• ## Standard Error Of Measurement Summary

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• ## Case Study: Adding The Risk-Free Government Finance

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• ## The Discounted Cash Flow Method

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• ## 3.12: Data Analysis Process

Formative indicators are used to form a superordinate construct where the individual indicators are weighted according to their relative importance in forming the construct (Chin, 1998). Moreover, the normality of data distribution not assumed, thus data with non-normal distributions can be conducted in structural equation modeling since its application is performed in a non parametric way. PLS is also recommended when either cross-sectional, survey, or quasi-experimental research designs are used; when a large number of manifest and latent variables are modeled or when too many or too few cases are available (Falk, 1992).These conditions apply to this study because it will adopt a survey design; the sample size in this study is relatively small (126) and the Likert- scale used in this study normally do not…

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• ## Treynor Portfolio Performance Measure

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• ## The Characteristics Of Zagzebski's Definition Of Knowledge

Given a situation where the agent utilizes double luck to acquire knowledge when a virtue-based act replaces justification makes us dissect the aspect of arrival. If the agent arrived to the truth and the motivation for doing so was not virtuous, then the same double-luck example could occur, the truth could be arrived and the knowledge acquired could not be good true knowledge. This is because the component of arrival does not entail the virtue. Therefore, there is no truth involved, but just luck. In this account her definition seems incomplete.…

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• ## Symbolism: Suhrawardī And Jāmī On Wujūd

But we know that things exist in the world and therefore we must admit the falsity of Suhrawardī’s theory. Jāmī’s first premise requires more elaboration. For him, the idea that wujūd is a mental concept and the principle that quiddity prior to receiving wujūd is non-existent are incompatible. We know that there is a substantial-accidental correspondence between wujūd and quiddity; this means that one of the two subsist in the other accidentally. Given the fact that quiddity is non-existent if we assume that wujūd is also non-existent then subsistence of each one in the other would never happen.…

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• ## Cousality Of Energy Development: Short And Long-Run Causity

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• ## Difference Between Determinism And Incompatibilism

In order to explain this phenomenon, determinists argue “cognitive science increasingly operates under the assumption that the mind is, or approximates, a deterministic system” (Evans 642). By arguing brains function in a deterministic manner, however, the agents’ choices would be predictable and therefore their future as well. Still, predictability is not completely related to the idea of determinism. A predictable system is an epistemological claim while a deterministic system is a metaphysical argument (Evans…

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