A Random Walk through the Gibson Paradox

P. Dean Corbae and Sam Ouliaris

Journal of Applied Econometrics, 1989, vol. 4, issue 3, 295-303

Abstract: Evidence to support the Gibson paradox is often given in the form of a simple correlation between the nominal interest rate and the log of price level, or in the form of a simple linear regression between these two variables. Authors then show, using standard procedures of statistical inference, that the price level possesses a significant coefficient. We argue that this class of evidence is spurious since the nominal interest rate and the price level (both integrated variables) do not form a cointegrated system. Copyright 1989 by John Wiley & Sons, Ltd.

Date: 1989
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