Causal Paths and Exogeneity Tests in Generalcorr Package for Air Pollution and Monetary Policy

39 Pages Posted: 7 Jun 2017

See all articles by Hrishikesh D. Vinod

Hrishikesh D. Vinod

Fordham University - Department of Economics

Date Written: June 6, 2017

Abstract

Since causal paths are important for all sciences, my package 'generalCorr' provides sophisticated R functions using four orders of stochastic dominance and generalized partial correlation coefficients. A new test (in Version 1.0.3) replaces Hausman-Wu medieval-style diagnosis of endogeneity relying on showing that a dubious cure (instrumental variables) works. An updated weighted index summarizes causal path results from three criteria: (Cr1) lower absolute gradients, (Cr2) lower absolute residuals, both quantified by stochastic dominance of four orders, and (Cr3) from goodness of fit. We illustrate with air-pollution data and causal strength of six variables driving 'excess bond premium,' a good predictor of US recessions.

Keywords: Kernel Regression, Stochastic Dominance, Bootstrap Inference, Econometrics

JEL Classification: C13, C36, C51, C63

Suggested Citation

Vinod, Hrishikesh D., Causal Paths and Exogeneity Tests in Generalcorr Package for Air Pollution and Monetary Policy (June 6, 2017). Available at SSRN: https://ssrn.com/abstract=2982128 or http://dx.doi.org/10.2139/ssrn.2982128

Hrishikesh D. Vinod (Contact Author)

Fordham University - Department of Economics ( email )

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Bronx, NY 10458
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