A Simple Test for Spurious Regressions
Antonio Noriega () and
No 2011-05, Working Papers from Banco de México
It has been found that the t-statistic for testing the null of no relationship between two independent variables diverges asymptotically under a wide variety of nonstationary data generating processes. This paper introduces a simple method which guarantees convergence of this t-statistic to a pivotal limit distribution, when there are drifts in the integrated processes generating the data, thus allowing asymptotic inference. This method can be used to distinguish a genuine relationship from a spurious one among integrated (I(1) and I(2)) processes. Simulation experiments show that the test has good properties in small samples. When applying the proposed procedure to real data (including the marriages and mortality data of Yule), we do not find (spurious) significant relationships between the variables.
JEL-codes: C12 C15 C22 C46 (search for similar items in EconPapers)
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Working Paper: A Simple Test for Spurious Regressions (2011)
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