Does Sunspot Numbers Cause Global Temperatures? Evidence from a Frequency Domain Causality Test

This paper applies the causality test in the frequency domain, developed by Breitung and Candelon (2006), to analyze whether sunspot numbers 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 does 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 to 2.6 months) and long (10.3 months and above) cycle lengths respectively. Our results highlight the importance of analyzing 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.