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What is spurious correlation? a reply to Díaz and Osuna


  • Andrew Kliman


Studies by the author showed that strong cross-sectional correlations between industry-level values and prices are spurious. Díaz and Osuna (2005-6) challenged this finding, arguing that the correlation results are fatally indeterminate, and that the author's procedure for eliminating spurious correlation destroys the value-price correlation because of its differential effect on the variables' standard deviations. Replying to these claims, this note argues that the charge of indeterminacy stems from Díaz and Osuna's misunderstanding of the concept of spurious correlation, and that the author's procedure causes the value-price correlation to vanish because the correlation is spurious.

Suggested Citation

  • Andrew Kliman, 2008. "What is spurious correlation? a reply to Díaz and Osuna," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 31(2), pages 345-356, December.
  • Handle: RePEc:mes:postke:v:31:y:2008:i:2:p:345-356

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    References listed on IDEAS

    1. Lance Taylor & Stephen A. O'Connell, 1985. "A Minsky Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 871-885.
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    4. Carl Chiarella & Peter Flaschel & Willi Semmler, 2001. "The macrodynamics of debt deflation," Chapters,in: Financial Fragility and Investment in the Capitalist Economy, chapter 7 Edward Elgar Publishing.
    5. Eric Nasica & Alain Raybaut, 2005. "Profits, confidence, and public deficits: modeling Minsky's institutional dynamics," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 28(1), pages 136-154.
    6. Sèbastien Charles, 2005. "A note on Some Minskyan Models of financial Instability," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2005(86).
    7. Semmler, Willi & Sieveking, Malte, 1993. "Nonlinear liquidity-growth dynamics with corridor-stability," Journal of Economic Behavior & Organization, Elsevier, vol. 22(2), pages 189-208, October.
    8. Eric Tymoigne, 2006. "The Minskyan System, Part II: Dynamics of the Minskyan Analysis and the Financial Fragility Hypothesis," Economics Working Paper Archive wp_453, Levy Economics Institute.
    9. Davis, E. Philip, 1995. "Debt, Financial Fragility, and Systemic Risk," OUP Catalogue, Oxford University Press, number 9780198233312, June.
    10. Gatti, D. Delli & Gallegati, M. & Gardini, L., 1993. "Investment confidence, corporate debt and income fluctuations," Journal of Economic Behavior & Organization, Elsevier, vol. 22(2), pages 161-187, October.
    11. Steve Keen, 1995. "Finance and Economic Breakdown: Modeling Minsky’s “Financial Instability Hypothesis”," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 17(4), pages 607-635, July.
    12. Marc Jarsulic, 1990. "Debt and Macro Stability," Eastern Economic Journal, Eastern Economic Association, vol. 16(2), pages 91-100, Apr-Jun.
    13. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
    14. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar Publishing, number 474.
    15. Leonce Ndikumana, 1999. "Debt Service, Financing Constraints, and Fixed Investment: Evidence from Panel Data," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 21(3), pages 455-478, March.
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    Cited by:

    1. Vaona, Andrea, 2015. "Price–price deviations are highly persistent," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 86-95.
    2. García-Belmonte, Lizeth & Ventosa-Santaulària, Daniel, 2011. "Spurious regression and lurking variables," Statistics & Probability Letters, Elsevier, vol. 81(12), pages 2004-2010.
    3. Andrea Vaona, 2014. "A panel data approach to price–value correlations," Empirical Economics, Springer, vol. 47(1), pages 21-34, August.


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