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A simple solution for spurious regressions

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  • Daniel Ventosa-Santaulària
  • Antonio E. Noriega

Abstract

The literature on spurious regressions has found that the t-statistic for testing the null of no relationship between two independent variables diverges asymptotically under a wide variety of non stationary data-generating processes for the dependent and explanatory variables. This paper introduces a simple method which guarantees convergence of this t-statistic to a pivotal limit distribution, thus allowing asymptotic inference. This method can be used to distinguish a genuine relationship from a spurious one among integrated processes. We apply the proposed procedure to several pairs of apparently independent integrated variables, and find that our procedure does not find (spurious) significant relationships.

Suggested Citation

  • Daniel Ventosa-Santaulària & Antonio E. Noriega, 2016. "A simple solution for spurious regressions," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 45(19), pages 5561-5583, October.
    • Handle: RePEc:taf:lstaxx:v:45:y:2016:i:19:p:5561-5583
    DOI: 10.1080/03610926.2014.948196
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