Granger Causality is a statistical hypothesis test for determining whether one time series can predict another. It is based on the premise that if variable Granger-causes variable , then past values of should provide statistically significant information about future values of , beyond what is contained in past values of alone. This relationship can be assessed using regression analysis, where the lagged values of both variables are included in the model.
The basic steps involved are:
It is important to note that Granger causality does not imply true causality; it only indicates a predictive relationship based on temporal precedence.
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