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Granger Causality Guy Lion December 2005
Granger Causality vs “Causality” ,[object Object],[object Object],[object Object]
Granger Causality steps ,[object Object],[object Object],[object Object],[object Object]
The Basic Picture Independent Variable being tested
The Whole Picture
Does  Loan     Granger  cause Deposit   Data source: quarterly basis since 2 nd  quarter of 1987.  Total loans and total deposits aggregated from Fed Data Flow of Funds Accounts (L109, L215, L216, L217, L222).   Let’s test if Loan    Granger causes Deposit   .  We will use Loan    with a 4 quarter lag since it has the highest correlation with Deposit   .
t Test (unpaired)   (Loans cause Deposits) The Test model achieved a  higher  adjusted R Square of 0.41 vs the Base case model’s 0.28.
t Test (unpaired)   (Deposits cause Loans) The Test model achieved a  lower  adjusted R Square of 0.45 vs the Base case model’s 0.46.
Loans    Granger causes Deposits    more than the reverse

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Granger Causality

  • 1. Granger Causality Guy Lion December 2005
  • 2.
  • 3.
  • 4. The Basic Picture Independent Variable being tested
  • 6. Does Loan  Granger cause Deposit  Data source: quarterly basis since 2 nd quarter of 1987. Total loans and total deposits aggregated from Fed Data Flow of Funds Accounts (L109, L215, L216, L217, L222). Let’s test if Loan  Granger causes Deposit  . We will use Loan  with a 4 quarter lag since it has the highest correlation with Deposit  .
  • 7. t Test (unpaired) (Loans cause Deposits) The Test model achieved a higher adjusted R Square of 0.41 vs the Base case model’s 0.28.
  • 8. t Test (unpaired) (Deposits cause Loans) The Test model achieved a lower adjusted R Square of 0.45 vs the Base case model’s 0.46.
  • 9. Loans  Granger causes Deposits  more than the reverse