Abstract:
This article applies the causality test in the frequency domain, developed
by Breitung and Candelon (2006), to analyse whether sunspot numbers
(used as a partial approximation to solar irradiance) cause global temperatures,
using monthly data covering the time period 1880:1–2013:9.
While standard time domain Granger causality test fails to reject the null
hypothesis that sunspot numbers do not cause global temperatures for
both full and sub-samples (identified based on tests of structural breaks),
the frequency domain causality test detects predictability for both the
full-sample and the last sub-sample at short (2–2.6 months) and long
(10.3 months and above) cycle lengths, respectively. Our results highlight
the importance of analysing causality using the frequency domain
test, which, unlike the time domain Granger causality test, allows us to
decompose causality by different time horizons, and hence, could detect
predictability at certain cycle lengths even when the time domain causality
test might fail to pick up any causality. Further, given the widespread
discussion in the literature, those results for the full-sample
causality, irrespective of whether it is in time or frequency domains,
cannot be relied upon when there are structural breaks present, and one
needs to draw inference regarding causality from the sub-samples, we
can conclude that there has been an emergence of causality running from
sunspot numbers to global temperatures only recently at cycle length of
10.3 months and above.
