Article,
Granger Causal Priority and Choice of Variables in Vector Autoregressions
The Review of Economics and Statistics, 99 (2): 319--329 (Mar 23, 2016)
DOI: 10.1162/rest\_a\_00601
Abstract
We derive a closed-form expression for the posterior probability of Granger noncausality in a gaussian vector autoregression with a conjugate prior. We also express in closed form the posterior probability of Granger causal priority, a more general relation that accounts for indirect effects between variables and therefore is suitable in a multivariate context. One can use these results to answer the classic question, ?Is variable z relevant for variable x?? and to choose variables for a vector autoregression.
