A Spurious Regression Approach to Estimating Structural Parameters

Chi-Young Choi; Ling Hu; Masao Ogaki
Authors registered in the RePEc Author Service: Chi-Young Choi and Masao Ogaki

No 555, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: Economic models often imply that certain variables are cointegrated. However, tests often fail to reject the null hypothesis of no cointegration for these variables. One possible explanation of these test results is that the error is unit root nonstationary due to a nonstationary measurement error in one variable. For example, currency held by the domestic economic agents for legitimate transactions is very hard to measure due to currency held by foreign residents and black market transactions. Therefore, money may be measured with a nonstationary error. If the money demand function is stable in the long-run, we have a cointegrating regression when money is measured with a stationary measurement error, but have a spurious regression when money is measured with a nonstationary measurement error. We can still recover structural parameters under certain conditions for the nonstationary measurement error. This paper proposes econometric methods based on asymptotic theory to estimate structural parameters with spurious regressions involving unit root nonstaionary variables.

Keywords: Spurious regression; GLS correction method (search for similar items in EconPapers)
JEL-codes: C10 C15 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: A Spurious Regression Approach to Estimating Structural Parameters (2004)
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