Spurious Regression and Trending Variables
AbstractThis 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 InfoArticle 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)
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- Antonio E. Noriega & Daniel Ventosa-Santaularia, 2006. "Spurious Regression and Trending Variables," Department of Economics and Finance Working Papers EM200701, Universidad de Guanajuato, Department of Economics and Finance, revised Jan 2007.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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