Spurious Regression and Trending Variables
This 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.
|Date of creation:||Sep 2006|
|Date of revision:||Jan 2007|
|Publication status:||Published in Oxford bulletin of Economics and Statistics (2007)|
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Web page: http://economia.ugto.org/
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