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SPURIOUS REGRESSION BETWEEN I(1) PROCESSES WITH INFINITE VARIANCE ERRORS

Wen-Jen Tsay ()

Econometric Theory, 1999, vol. 15, issue 4, 622-628

Abstract: This paper considers spurious regression between integrated processes with stable errors. Our results show that the t-ratios diverge at the rate of √T, which is identical to what Phillips (1986, Journal of Econometrics 33, 311–340) has obtained for the Gaussian case. Therefore, it is the long memory in the dependent variable and regressors, instead of the moment conditions of the error terms, that causes the spurious regression.

Date: 1999
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