silentPair2: kernel causality (version 2) scores with control variables

In generalCorr: Generalized Correlations, Causal Paths and Portfolio Selection

kernel causality (version 2) scores with control variables

Description

This function uses flipped kernel regressions to decide causal directions. This version 2 avoids Anderson's trapezoidal approximation used in ‘silenPairs.’ It calls functions: decileVote, momentVote, exactSdMtx, and summaryRank after stochastic dominance is computed. It computes an average of ranks used. The column with the “choice” rank value helps in choosing the flip having the lowest Hausman-Wu (residual times RHS regressor) and secondly the lowest absolute residual. The chosen flipped regression defines the “cause" based on the variable on its right-hand side. In portfolio selection, choice rank 1 has the highest return. Here we want low residuals and low Hausman-Wu value, hence we choose choice=2 as the desirable flip.

The function develops a unanimity index regarding the particular flip (y on xi) or (xi on y) is best. A summary of all relevant signs determines the causal direction and unanimity index among three criteria. The ‘2’ in the name of the function suggests a second implementation where exact stochastic dominance, decileVote, and momentVote algorithms are used.

Usage

silentPair2(mtx, ctrl = 0, dig = 6)

Arguments

mtx	The data matrix with p columns. Denote x1 as the first column, which is fixed in all rows of the output and then it is paired with all other columns, say: x2, x3, .., xp, one by one for the purpose of flipping with x1. p must be 2 or more
ctrl	data matrix for designated control variable(s) outside causal paths, default is ctrl=0, which means that there are no control variables used.
dig	Number of digits for reporting (default dig=6).

Value

A matrix with p columns in mtx argument to this function, x1 can be paired with a total of p-1 columns (x2, x3, .., xp). Note we never flip any of the control variables with x1. This function produces i=1,2,..,p-1 numbers representing the summary sign, or ‘sum’ from the signs sg1 to sg3 associated with the three criteria: Cr1, Cr2, and Cr3. Note that sg1 and sg2 themselves are weighted signs using a weighted sum of signs from four orders of stochastic dominance. In general, a positive sign in the i-th location of the ‘sum’ output of this function means that x1 is the kernel cause while the variable in (i+1)-th column of mtx is the ‘effect’ or ‘response’ or ‘endogenous.’ The magnitude represents the strength (unanimity) of the evidence for a particular sign. Conversely, a negative sign in the i-th location of the ‘sum’ output of this function means that the first variable listed as the input to this function is the ‘effect,’ while the variable in (i+1)-th column of mtx is the exogenous kernel cause.

Note

The European Crime data has all three criteria correctly suggesting that a high crime rate kernel causes the deployment of a large number of police officers. The command attach(EuroCrime); silentPairs(cbind(crim,off)) returns only one number: 3.175, implying the highest unanimity strength index, with the positive sign suggesting ‘crim’ in the first column kernel causes ‘off’ in the second column of the argument mtx to this function.

Author(s)

Prof. H. D. Vinod, Economics Dept., Fordham University, NY.

References

H. D. Vinod 'Generalized Correlation and Kernel Causality with Applications in Development Economics' in Communications in Statistics -Simulation and Computation, 2015, \Sexpr[results=rd]{tools:::Rd_expr_doi("10.1080/03610918.2015.1122048")}

Vinod, H. D. Causal Paths and Exogeneity Tests in Generalcorr Package for Air Pollution and Monetary Policy (June 6, 2017). Available at SSRN: https://www.ssrn.com/abstract=2982128

See Also

See summaryRank, decileVote

See momentVote, exactSdMtx

Examples

## Not run: 
options(np.messages=FALSE)
colnames(mtcars[2:ncol(mtcars)])
silentPair2(mtcars[,1:3],ctrl=mtcars[,4:5]) # mpg paired with others

## End(Not run)

options(np.messages=FALSE)
set.seed(234)
z=runif(10,2,11)# z is independently created
x=sample(1:10)+z/10 #x is somewhat indep and affected by z
y=1+2*x+3*z+rnorm(10)
w=runif(10)
x2=x;x2[4]=NA;y2=y;y2[8]=NA;w2=w;w2[4]=NA
silentPair2(mtx=cbind(x2,y2), ctrl=cbind(z,w2))

generalCorr documentation built on Oct. 10, 2023, 1:06 a.m.