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New Tools for Understanding Spurious Regressions

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Author Info
Peter C. B. Phillips

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Abstract

Some new tools for analyzing spurious regressions are presented. The theory utilizes the general representation of a stochastic process in terms of an orthonormal system and provides an extension of the Weierstrass theorem to include the approximation of continuous functions and stochastic processes by Wiener processes. The theory is applied to two classic examples of spurious regressions: regressions of stochastic trends on time polynomials and regressions among independent random walks. It is shown that such regressions reproduce in part and in whole the underlying orthonormal representations.

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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 66 (1998)
Issue (Month): 6 (November)
Pages: 1299-1326
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Handle: RePEc:ecm:emetrp:v:66:y:1998:i:6:p:1299-1326

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  1. Patrick Marsh, . "A Measure of Distance for the Unit Root Hypothesis," Discussion Papers 05/02, Department of Economics, University of York. [Downloadable!]
  2. Guillaume Chevillon, 2004. "`Weak` trends for inference and forecasting in finite samples," Economics Series Working Papers 210, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  3. Ai Deng, 2005. "Understanding Spurious Regression in Financial Economics," Boston University - Department of Economics - Working Papers Series WP2005-048, Boston University - Department of Economics. [Downloadable!]
  4. Peter C.B. Phillips, 2003. "Laws and Limits of Econometrics," Cowles Foundation Discussion Papers 1397, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  5. Peter C.B. Phillips, 2000. "Trending Time Series and Macroeconomic Activity: Some Present and Future Challenges," Cowles Foundation Discussion Papers 1264, Cowles Foundation, Yale University. [Downloadable!]
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  6. Ulrich Mueller & Mark W. Watson, 2006. "Testing Models of Low-Frequency Variability," NBER Working Papers 12671, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Peter C. B. Phillips, 2001. "Descriptive econometrics for non-stationary time series with empirical illustrations," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 389-413. [Downloadable!]
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  8. Antonio E. Noriega & Daniel Ventosa-Santaularia, . "Spurious Regression and Trending Variables," School of Economics Working Papers EM200701, Universidad de Guanajuato. [Downloadable!]
    Other versions:
  9. Wayne E. Ferson & Sergei Sarkissian & Timothy Simin, 2002. "Spurious Regressions in Financial Economics?," NBER Working Papers 9143, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Peter C.B. Phillips, 2008. "Local Limit Theory and Spurious Nonparametric Regression," Cowles Foundation Discussion Papers 1654, Cowles Foundation, Yale University. [Downloadable!]
  11. Shahidur Rahman, 2005. "An Alternative Estimation to Spurious Regression Model," Economic Growth centre Working Paper Series 0507, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre. [Downloadable!]
  12. Peter C.B. Phillips, 1998. "New Unit Root Asymptotics in the Presence of Deterministic Trends," Cowles Foundation Discussion Papers 1196, Cowles Foundation, Yale University. [Downloadable!]
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  13. Xu Cheng & Peter C.B. Phillips, 2008. "Semiparametric Cointegrating Rank Selection," Cowles Foundation Discussion Papers 1658, Cowles Foundation, Yale University. [Downloadable!]
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  14. Peter C.B. Phillips, 2001. "Bootstrapping Spurious Regression," Cowles Foundation Discussion Papers 1330, Cowles Foundation, Yale University. [Downloadable!]
  15. Peter C.B. Phillips, 2004. "Challenges of Trending Time Series Econometrics," Cowles Foundation Discussion Papers 1472, Cowles Foundation, Yale University. [Downloadable!]
  16. Xu Cheng & Peter C. B. Phillips, 2009. "Cointegrating Rank Selection in Models with Time-Varying Variance," Cowles Foundation Discussion Papers 1688, Cowles Foundation, Yale University. [Downloadable!]
  17. Alex Maynard & Peter C. B. Phillips, 2001. "Rethinking an old empirical puzzle: econometric evidence on the forward discount anomaly," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 671-708. [Downloadable!]
  18. Peter C. B. Phillips, 2006. "Optimal Estimation of Cointegrated Systems with Irrelevant Instruments," Cowles Foundation Discussion Papers 1547, Cowles Foundation, Yale University. [Downloadable!]
  19. Peter C.B. Phillips, 2004. "HAC Estimation by Automated Regression," Cowles Foundation Discussion Papers 1470, Cowles Foundation, Yale University. [Downloadable!]
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