A model order test is one approach for determining lags I and j. (i.e., use a model order selection method). It may be simpler to select many numbers and run the Granger test numerous times to determine if the findings are consistent across lag levels. The results should not be affected by delays. For example, a positive result at lag 1 means that variable X causes Y one period later; a negative result at lag 1 means that Y causes X one period later. A positive result at lag 2 means that X causes Y two periods after it happens; a negative result at lag 2 means that Y causes X two periods after it happens.
Excel Granger Causality
The basic stages for carrying out the test are as follows:
The lag indicates how much the series are offset, while the sign indicates which series is displaced. To seek for periodicities in the original time series, plot the correlation coefficients vs lag. If the data is periodic, the correlation coefficients will oscillate with a lag. The period can be calculated from the x-axis of the correlation diagram.
A "lag" is a fixed length of time that passes between two sets of observations in a time series that are plotted (lagged) against a second, later batch of data. The kth lag is the time interval that occurred "k" time points prior to time i. Lag1 (Y2), for example, equals Y1 and Lag4 (Y9) equals Y5. There are no fixed rules for what number should be used for the lag; it depends on how much change has happened in the series since it last changed.
Lag times can be positive or negative. For example, if you were measuring the height of someone over time and noticed that they grew by 1 cm every month but didn't grow any taller then it would be apparent that they had reached their maximum height after one year. If they stayed at that height then we could say that their lag time was 12 months - that is, it took them a year to respond to being kept at a constant size.
In time series analysis, lags are useful for removing spurious relationships from the data. For example, let's say that we are looking at how much money people spend during Christmas holidays. We might find that those people who spend more money before Christmas tend to spend more money overall. This could be because people with more money go on holiday earlier or it could be because people with more money buy gifts for others too. The latter explanation seems likely but only if we take into account that people tend to spend more money when there is more of it around!
The number of probable matches diminishes as the lag rises because the series "hang out" at the endpoints and do not overlap. If there is a peak at a reasonable distance from zero (i.e., less than half the sample size) that's usually taken to mean there's a match.
The general guideline is to choose the criterion with the lowest value, which is again the AIC at 26.90693. This is due to the fact that the lower the value, the better the model. We may infer that the optimal lag duration for the model is 2 and that AIC is the best criteria to use for the model.
3 Causes and Effects The linear Granger causality in VAR may be applied to stationary time series. If the data is neither stationary or co-integrated, the VAR can be fit to the differenced time series. Then, the linear Granger causality may be applied to the differenced time series.