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On spurious regressions with partial unit root processes

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  • Tu, Yundong

Abstract

This paper considers spurious regressions with partial unit root and near partial unit root processes. Three models are investigated via simulations to study the rejection probability of the associated t-statistics in detecting the spurious correlation. The results reveal that the spurious regression is a not-so-spurious problem, which cannot be eliminated by adding AR(1) errors in re-estimation. Moreover, the advocated balanced regression approach is found effective in detecting the non-existent relationship.

Suggested Citation

  • Tu, Yundong, 2017. "On spurious regressions with partial unit root processes," Economics Letters, Elsevier, vol. 150(C), pages 142-145.
    • Handle: RePEc:eee:ecolet:v:150:y:2017:i:c:p:142-145
    DOI: 10.1016/j.econlet.2016.11.028
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    References listed on IDEAS

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    1. D. Ventosa-Santaulària, 2009. "Spurious Regression," Journal of Probability and Statistics, Hindawi, vol. 2009, pages 1-27, August.
    2. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
    3. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
    4. Zhang, Lingxiang, 2013. "Partial unit root and linear spurious regression: A Monte Carlo simulation study," Economics Letters, Elsevier, vol. 118(1), pages 189-191.
    5. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    6. McCallum, Bennett T., 2010. "Is the spurious regression problem spurious?," Economics Letters, Elsevier, vol. 107(3), pages 321-323, June.
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    Cited by:

    1. Lin, Yingqian & Tu, Yundong, 2020. "Robust inference for spurious regressions and cointegrations involving processes moderately deviated from a unit root," Journal of Econometrics, Elsevier, vol. 219(1), pages 52-65.
    2. Zhang, Lingxiang, 2018. "Spurious regressions with high-order models: A reconsideration," Economics Letters, Elsevier, vol. 168(C), pages 70-72.

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    More about this item

    Keywords

    Balanced regression; Partial near unit root; Spurious regression;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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