Spurious Regression and Trending Variables
AbstractThis paper analyses the asymptotic and finite sample implications of different types of nonstationary behavior among the dependent and explanatory variables in a linear spurious regression model. We study cases when the nonstationarity 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 linear regression equation under a variety of empirically relevant data generation processes, and show that he spurious regression phenomenon is present in all cases considered, when at least one of the variables behaves in a nonstationary way. Simulation experiments confirm our asymptotic results.
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Bibliographic InfoPaper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EM200701.
Length: 11 pages
Date of creation: Sep 2006
Date of revision: Jan 2007
Publication status: Published in Oxford bulletin of Economics and Statistics (2007)
Contact details of provider:
Postal: UCEA-Campus Marfil, Fracc. I, El Establo, Guanajuato GTO 36250
Phone: [+52 473] 735 2925 x-2925
Fax: [+52 473] 735 2925 x-2925
Web page: http://economia.ugto.org/
More information through EDIRC
Trend Stationarity; Structural Breaks; Spurious Regression; Unit Roots; Trends;
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-26 (All new papers)
- NEP-ECM-2007-05-26 (Econometrics)
- NEP-ETS-2007-05-26 (Econometric Time Series)
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