Bootstrapping Spurious Regression

Peter Phillips

No 1330, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: The bootstrap is shown to be inconsistent in spurious regression. The failure of the bootstrap is spectacular in that the bootstrap effectively turns a spurious regression into a cointegrating regression. In particular, the serial correlation coefficient of the residuals in the bootstrap regression does not converge to unity, so the bootstrap is not even first order consistent. The block bootstrap serial correlation coefficient does converge to unity and is therefore first order consistent, but has a slower rate of convergence and a different limit distribution from that of the sample data serial correlation coefficient. The analysis covers spurious regressions involving both deterministic trends and stochastic trends. The results reinforce earlier warnings about routine use of the bootstrap with dependent data.

Keywords: Asymptotic theory; Bootstrap; Brownian motion; Cointegration; LK representation; Nonstationarity; Residual diagnostics; Unit root (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2001-09
New Economics Papers: this item is included in nep-ecm, nep-ent, nep-ets and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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