Spurious regression phenomenon has been recognized for a wide range of Data Generating Processes: driftless unit roots, unit roots with drift, long memory, trend and broken-trend stationarity, etc. The usual framework is Ordinary Least Squares. We show that the spurious phenomenon also occurs in Instrumental Variables estimation when using non-stationary variables, whether the non-stationarity component is stochastic or deterministic. Finite sample evidence supports the asymptotic results.
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Length: Date of creation: Date of revision: Handle: RePEc:gua:wpaper:em200704
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Find related papers by JEL classification: C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
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