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Spurious Regression and Trending Variables

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  • Antonio E. Noriega
  • Daniel Ventosa-Santaulària

Abstract

This paper analyses the asymptotic and finite-sample implications of different types of non-stationary behaviour among the dependent and explanatory variables in a linear spurious regression model. We study cases when the non-stationarity in the dependent and explanatory variables is deterministic as well as stochastic. In particular, we derive the order in probability of the "t"-statistic in a spurious regression equation under a variety of empirically relevant data generation processes, and show that the spurious regression phenomenon is present in all cases when both dependent and explanatory variables behave in a non-stationary way. Simulation experiments confirm our asymptotic results. Copyright 2007 Blackwell Publishing Ltd and the Department of Economics, University of Oxford.

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 69 (2007)
Issue (Month): 3 (06)
Pages: 439-444

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Handle: RePEc:bla:obuest:v:69:y:2007:i:3:p:439-444

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Cited by:
  1. Zhang, Lingxiang, 2013. "Partial unit root and linear spurious regression: A Monte Carlo simulation study," Economics Letters, Elsevier, Elsevier, vol. 118(1), pages 189-191.
  2. Chris Stewart, 2011. "A note on spurious significance in regressions involving I(0) and I(1) variables," Empirical Economics, Springer, Springer, vol. 41(3), pages 565-571, December.
  3. Robinson Kruse & Daniel Ventosa-Santaulària & Antonio E. Noriega, 2013. "Changes in persistence, spurious regressions and the Fisher hypothesis," CREATES Research Papers 2013-11, School of Economics and Management, University of Aarhus.
  4. Antonio E. Noriega & Daniel Ventosa-Santaularia, 2011. "A Simple Test for Spurious Regressions," CREATES Research Papers 2011-15, School of Economics and Management, University of Aarhus.
  5. Antonio E. Noriega & Daniel Ventosa-Santaulària, 2010. "Spurious Long-Horizon Regression in Econometrics," Working Papers, Banco de México 2010-06, Banco de México.
  6. Gomez Zaldivar, M. & Ventosa-Santaularia, D., 2009. "Bilateral Relationship between Consumption and GDP in Mexico and the USA: A Comment," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 9(1).

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