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T HE purpose of this paper is to study the small sample performance of tests for causal ordering of time series in the sense of Granger (1969). Versions of three tests are studied: that based directly on Granger's definition of causality and suggested by Sargent (1976); that suggested by Sims (1972); and the modification of Sims suggested by Geweke, Meese, and Dent (1982).

Tests for causal orderings of time series have been applied often in recent econometric work. Sims (1972) introduced his version of a causal ordering test to inquire whether money was exogenous (as monetarists might suggest) in the money income relationship. Sargent (1976) used Granger and Sims procedures to test the validity of the natural-rate hypothesis inherent in his model. Salemi (1980) employed the Granger test as a test of specification of a money demand equation in hyperinflation. A goal of our research is to conduct our study with …