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reverse causality and channel of propagation if a shock

Posted: Sun Jan 03, 2021 11:28 am
by alz
Dear all,

First of all, happy new year to everybody.

I would like to ask some questions. I am trying to estimate the effect of trade shocks like China in WTO or the formation of the EU single market for the US economy. I have estimated the gdp growth with just real export, real imports and current account( the US is a big importer),and the lags of gdp. To begin with, would you consider this equation correct? Do you think I should also add other factors in the ecm (such as human capital for a cobb Douglas equation, or investment,consumption which should be included in my equation through the lags of real gdp)? I have also estimate an equation for real import and real export. I plan to add some external variables to the real export and import equations to simulate the shocks.How can I be sure that the effect of these shocks on gdp growth can be attributed exclusively to the effect these shocks have on import and export?
Also,there seems to be reverse causality in my equations ( for example real imports is determined by real gdp in according to granger causality test). What should I do in this case? Do you think that the effect of these shocks is unreliable? I was not totally surprised given the complexity of the economic structure of the US but I do not know how to fix it.

Thank you in advance,

It is almost impossible to contact my thesis supervisor so I am quite lost.

Happy New Year!!