Identification and Inference of Long-Run Causal Exogeneity: A Graphical Approach

45 Pages Posted: 1 May 2024

See all articles by Emanuele Lopetuso

Emanuele Lopetuso

University of Reading - ICMA Centre

Michael Clements

University of Reading

Andrew Urquhart

University of Reading - ICMA Centre; ICMA Centre, Henley Business School

Date Written: May 1, 2024

Abstract

The appropriate definition, role and use of exogeneity in economic analysis has been an area of considerable contention. The empirical resolution of these disputes has proven to be challenging due to the incongruity between the econometric tools, which rely on statistical considerations, and the theoretical perspectives that emphasize causal relationships. Drawing on the properties of the graphical representation of the latent causal structure, this paper introduces a causal definition of exogeneity, that has both strong and weak forms. Exploiting state-of-the-art tools in the field of cointegration analysis, we investigate the interplay between causal exogeneity and the restrictions it imposes on models, without requiring that all relevant variables are reserved. The duality between causal exogeneity and the restrictions on model parameters lays the foundation for the development of testing procedures tailored to facilitate causal logic.

Keywords: Exogeneity, Causality, Causal Inference, Long-Run Causality, Cointegrated Vector Autoregression

JEL Classification: C32, C51, C18

Suggested Citation

Lopetuso, Emanuele and Clements, Michael and Urquhart, Andrew, Identification and Inference of Long-Run Causal Exogeneity: A Graphical Approach (May 1, 2024). Available at SSRN: https://ssrn.com/abstract=4813880 or http://dx.doi.org/10.2139/ssrn.4813880

Emanuele Lopetuso (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights
Henley, RG9 3AU
United Kingdom

Michael Clements

University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Andrew Urquhart

University of Reading - ICMA Centre ( email )

ICMA Centre, Henley Business School ( email )

University of Reading
Whiteknights
Reading, Berkshire RG6 6BA
United Kingdom

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