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A simple solution for spurious regressions

Daniel Ventosa-Santaulària and Antonio Noriega ()

Communications in Statistics - Theory and Methods, 2016, vol. 45, issue 19, 5561-5583

Abstract: The literature on spurious regressions has found that the t-statistic for testing the null of no relationship between two independent variables diverges asymptotically under a wide variety of non stationary data-generating processes for the dependent and explanatory variables. This paper introduces a simple method which guarantees convergence of this t-statistic to a pivotal limit distribution, thus allowing asymptotic inference. This method can be used to distinguish a genuine relationship from a spurious one among integrated processes. We apply the proposed procedure to several pairs of apparently independent integrated variables, and find that our procedure does not find (spurious) significant relationships.

Date: 2016
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DOI: 10.1080/03610926.2014.948196

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