How do you use Granger Causality test?

Answer 1

The Granger Causality test is used to determine whether one time series can predict another time series. To perform the test, you first specify two time series and then fit a vector autoregressive (VAR) model to both. By comparing the predictive power of the model with the lagged values of the first series against a model without those lags, you can assess whether past values of the first series Granger-cause the second. A significant result indicates that the first series contains information that helps predict the second series.