Searcharxiv⌕ Search
Home/Archive/arXiv

arXiv · 2509.05284

Causal mechanism and mediation analysis for macroeconomics dynamics: a bridge of Granger and Sims causality

Jean-Marie Dufour·Endong Wang
View original source ↗Read source document ↗Export metadata ↓

Abstract

This paper introduces a novel concept of impulse response decomposition to disentangle the dynamic contributions of the mediator variables in the transmission of structural shocks. We justify our decomposition by drawing on causal mediation analysis and demonstrating its equivalence to the average mediation effect. Our result establishes a formal link between Sims and Granger causality. Sims causality captures the total effect, while Granger causality corresponds to the mediation effect. We construct a dynamic mediation index that quantifies the evolving role of mediator variables in shock propagation. Applying our framework to studies of the transmission channels of US monetary policy, we find that investor sentiment explains approximately 60% of the peak aggregate output response in three months following a policy shock, while expected default risk contributes negligibly across all horizons.

Explore related subjects

econ.EM

Keep this discovery

Explore connections, maps & timelines

BibTeXRIS

Jean-Marie Dufour, Endong Wang. 2025-09-05. Causal mechanism and mediation analysis for macroeconomics dynamics: a bridge of Granger and Sims causality. https://arxiv.org/abs/2509.05284

Cite the original work for its findings. Save a collection to share your selection of sources.

KEEP EXPLORING

Related papers

arXiv2026

Identification in Linear Quantile Panel Models

This paper studies identification in linear quantile panel models with unrestricted individual heterogeneity when the number of time periods is fixed and small. We impose strict exogeneity, whereby the conditional quantile restriction holds given the individual's complete regressor history and latent individual effect, but otherwise allow the disturbances to be arbitrarily dependent over time.

econ.EM↗
arXiv2026

Experimental Design for Policy Choice

We show how to optimally design experiments when the resulting data will be used to choose a welfare-maximizing policy subject to constraints. A decision maker seeks to maximize Bayes expected welfare by choosing a policy whose effects depend on an unknown finite-dimensional parameter. The decision maker has access to a first wave of experimental data with a fixed design but may choose the design of a second wave that will be collected before choosing the policy. The resulting experimental design--policy choice problem is a very high-dimensional dynamic program that is generally intractable in finite samples. We propose a tractable approximation based on the limit experiment and show it is asymptotically optimal using a new asymptotic representation theorem for adaptive experiments with continuous treatments. We apply the method to a conditional cash transfer experiment and demonstrate the potential for large gains from tailoring the experiment to the policy choice.

econ.EM↗
arXiv2026

Designing Spatial Treatments

Spatial treatments are interventions assigned to locations potentially distinct from those of the responding units. We study their optimal design under a general model in which a unit's response diminishes with distance to a treated site. Our estimand of interest is an ``uncontaminated'' effect equal to the average impact of a single intervention site over all hypothetical sites. We propose a novel design based on a Mat\'{e}rn point process which separates treatments by a distance of at least $r$. A larger choice of $r$ reduces bias by separating interventions but increases variance by reducing their numerosity. We choose $r$ to maximize the rate of convergence of a Horvitz-Thompson estimator and prove that this is minimax rate-optimal. We provide weak conditions under which the estimator is asymptotically normal and propose a variance estimator.

econ.EM↗