First of all I would like to share with you why we run granger causality test? In simple regression we can find that either there is any significant relationship exist or not between projected variables, but we can’t find find either “X” effecting “y” or “Y ” effecting “X”. So in simple wording, granger causality test is run to see the direction of relationship between proposed variables.
Step#1 go to quick------group quick------group statistics—granger causality
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Muhammad saeed Meo, superior university Page 1
Step#2. Write the name of your variables in the following box and enter.
Step#3.when Step#3.when you press ok button of above window then, ask for lags, so it’s up to you how much lags you need or keep default lags and enter or press ok button.
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Step#4. When you will press ok button of step number three, then following window will be open.
Interpretation of above results, If probability value comes less than 5% percent than we conclude X, effect to Y. For example, like in our case, GDP does not Granger Cause CO2
40
2.14037
0.1328
Our probability value is .1328 which is more than 5%, means GDP does not be a cause of CO2. Means if gdp increase or decrease co2 does not effect Another case
OIL does not Granger Cause CO2
39
5.95157
0.0061
Here we can conclude that oil effect co2, means if oil increase or decrease in this response co2 also increase or decrease.
