Spurious regression under deterministic and stochastic trends
Antonio Noriega () and
No EM200503, Department of Economics and Finance Working Papers from Universidad de Guanajuato, Department of Economics and Finance
This paper analyses the asymptotic and finite sample implications of a mixed nonstationary behavior among the dependent and explanatory variables in a linear spurious regression model. We study the cases when the nonstationarity in the dependent variable is deterministic (stochastic), while the nonstationarity in the explanatory variable is stochastic (deterministic). In particular, we derive the asymptotic distribution of statistics in a spurious regression equation when one variable follows a difference stationary process (a random walk with and without drift), while the other is characterized by deterministic nonstationarity (a linear trend model with and without structural breaks in the trend function). We find that the divergence rate is sensitive to the assumed mixture of nonstationarity in the data generating process, and the phenomenon of spurious regression itself, contrary to previous findings, depends on the presence of a linear trend in the regression equation. Simulation experiments and real data confirm our asymptotic results.
Keywords: Unit roots; Trend stationarity; Structural breaks; Spurious regression (search for similar items in EconPapers)
JEL-codes: C12 C13 C22 (search for similar items in EconPapers)
Pages: 16 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published in Oxford Bulletin of Economics and Statistics (2007)
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to economia.ugto.org:80 (No such host is known. )
Working Paper: Spurious regression under deterministic and stochastic trends (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:gua:wpaper:em200503
Access Statistics for this paper
More papers in Department of Economics and Finance Working Papers from Universidad de Guanajuato, Department of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Luis Sanchez Mier ( this e-mail address is bad, please contact ).