Friday, June 6, 2008

Can we determine causality without really determining causality?

The recent rise in the price of oil ($139 today) has been determined to be the cause of the following:
1. The fall in the number of miles driven
2. The fall in consumption of gasoline
3. The fall in the sales of light trucks
See a summary here by Jim Hamilton. Yet how has causality been determined? Certainly, not by randomized trial or by any econometric methods - except for ocular regression. Two time series are running in different directions therefore it has to be the cause. Fifty years from now, when we look at these time series again can we actually conclude that the price of oil cause the declines?

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