This document provides information about performing a Granger causality test in Eviews. It defines Granger causality, lists the assumptions, outlines the method steps to run the test in Eviews, and provides an example of results and interpretation. The method section explains how to open Eviews, create a new work file with dated data from 1979-2010, select the Granger causality test and specify lags, and view the results. The results section shows an example output and interpretation that the null hypothesis that LCPI does not Granger cause LPGDP is accepted.

1. Department
BS(Hons)Economics

2. Granger causality test

3. 3
Definition:
Xt is said not to Granger-cause Yt if for all h > o
F(Yt+hSt) = F(yt+hSt − Xt)
where F denotes the conditional distribution and
St− Xt is all the information in
the universe except series Xt. In plain words, Xt is
said to not Granger-cause Yt if
X cannot help predict future Y.

4. Assumptions:
1…The future cannot cause the past.The past
causes the present or future.
2… A cause contains unique information about an
effect not available elsewhere.

5. Method:
Open Eviews
Select (File-New-Workfile)
New window with the name of (Work File creat)
will open select option work file structure type
dated data.
Select option for data description Annual.
Start data…….1979
End data…….2010
Click OK.
New work file is creat.Past the data.Click View and
then select the Granger Causality Test and write
the lag number and then Click on OK.

6. Results:
 Pairwise Granger Causality Tests
 Date: 04/10/15 Time: 21:26
 Sample: 1979 2010
 Lags: 3
Null Hypothesis obs F-statistic Prob.
LCPI does not Granger 29 2.31563 0.1037
Cause LPGDP
LPGDP does not Granger 1.70853 0.1944
Cause LCPI

7. Interpretation:
 LCPI does not Granger Cause LPGDP
 This Hypothesis is accept because its probability
(0.1037) is greater than 0.05.Its mean that
LPGDP Granger Cause LCPI.
 LPGDP does not Granger Cause LCPI
 This Hypothesis is accept because its probability
(0.1944) is greater than 0.05.Its mean that LCPI
Granger Cause LPGDP.

8. References:
1--- www.Economics.com
2---Applied Economics by
Esterio and Stephen G.