Causal Inference

Abstract

When a particular event is observed, such as an economic variable taking a value in some region of the set of all possible values, it is natural to ask why that event occurred rather than some other. If, just earlier, some other event was observed to occur, it is also natural to ask if the joint observation of the two events indicates a relationship and possibly one that could be called an influence of one event by another, or even a causation. For a unique, or very rare event, such as the start of a world war, it will be very difficult to present more than sensible and suggestive statistical evidence about causation. However, in economics, values for many variables are observed with great regularity, such as daily stock market prices or monthly production figures and so a generating mechanism can be postulated that produces these values and the investigation and understanding of this mechanism is obviously one of the main tasks for the economist. In such studies, ideas such as theories, laws and causation arise very naturally, and economists in their workings use such words very frequently. It is unfortunately true that not all writers give the same meanings to these words. The understanding of causality is not the same for all economists, but this is hardly surprising as statisticians and philosophers are also not in agreement among themselves.