Type I Spurious Regression in Econometrics

Carl Chiarella () and S. Gao
Additional contact information
S. Gao: Discipline of Economics, University of Sydney

No 114, Working Paper Series from School of Finance and Economics, University of Technology, Sydney

Abstract: In applied econometrics researchers often infer the relation among nonstationary time series by regression of their differences. The aim of this paper is to show that in some circumstances regression of differenced time series tends to reject the relation among their levels. This phenomenon is known as type I spurious regression. Time series are dynamic processes, and the ignored system dynamics will become the systematic errors in regression equations. Differencing does not preserve the underlying relation among time series in regression due to systematic errors. This paper will outline how regression of differenced time series tends to reject the relation between their levels, and so potentially to incur type I spurious regression.

Keywords: type I spurious regression; systematic errors; invariant dynamic relations (search for similar items in EconPapers)
JEL-codes: C12 C13 C22 (search for similar items in EconPapers)
Date: 2002-04-01
View citations in EconPapers

Downloads: (external link)
http://www.business.uts.edu.au/finance/research/wpapers/wp114.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:uts:wpaper:114

Access Statistics for this paper

More papers in Working Paper Series from School of Finance and Economics, University of Technology, Sydney
Address: PO Box 123, Broadway, NSW 2007, Australia
Contact information at EDIRC.
Series data maintained by Duncan Ford ().