each of the two variables Granger-causes the other.

Mathematical statement

Let y and x be stationary time series. To test the null hypothesis that x does not Granger-cause y, one first finds the proper lagged values of y to include in a univariate autoregression of y:

Next, the autoregression is augmented by including lagged values of x:

One retains in this regression all lagged values of x that are individually significant according to their t-statistics,

1.Previous
3.Next