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Spurious regression and lurking variables

  • García-Belmonte, Lizeth
  • Ventosa-Santaulària, Daniel

We present asymptotic and finite-sample arguments to study the spurious regression problem. This problem may be solved by introducing a lurking variable in the specification even if it is merely a proxy variable. Moreover, this approach is also valid if the lurking variable is a trending mechanism, as when the spurious regression is due to nonstationarities in the variables.

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Article provided by Elsevier in its journal Statistics & Probability Letters.

Volume (Year): 81 (2011)
Issue (Month): 12 ()
Pages: 2004-2010

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Handle: RePEc:eee:stapro:v:81:y:2011:i:12:p:2004-2010
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  1. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
  2. Kim, Tae-Hwan & Lee, Young-Sook & Newbold, Paul, 2004. "Spurious regressions with stationary processes around linear trends," Economics Letters, Elsevier, vol. 83(2), pages 257-262, May.
  3. Andrew Kliman, 2008. "What is spurious correlation? a reply to Díaz and Osuna," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(2), pages 345-356, December.
  4. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
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