Is the Spurious Regression Problem Spurious?
AbstractSo-called “spurious regression” relationships between random-walk (or strongly autoregressive) variables are generally accompanied by clear signs of severe autocorrelation in their residuals. A conscientious researcher would therefore not end an investigation with such a result, but would likely re-estimate with an autocorrelation correction. Simulations show, for several typical cases, that the test-rejection statistics for the re-estimated relationships are very close to the true values, so do not yield results of the spurious type.
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Date of creation: Jan 2010
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- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-20 (All new papers)
- NEP-ECM-2010-02-20 (Econometrics)
- NEP-ETS-2010-02-20 (Econometric Time Series)
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