Spurious Instrumental Variables
No EM200704, Department of Economics and Finance Working Papers from Universidad de Guanajuato, Department of Economics and Finance
Spurious regression phenomenon has been recognized for a wide range of Data Generating Processes: driftless unit roots, unit roots with drift, long memory, trend and broken-trend stationarity, etc. The usual framework is Ordinary Least Squares. We show that the spurious phenomenon also occurs in Instrumental Variables estimation when using non-stationary variables, whether the non-stationarity component is stochastic or deterministic. Finite sample evidence supports the asymptotic results.
Keywords: IV Estimator; Spurious Regression; Broken-Trend stationarity; Unit Root (search for similar items in EconPapers)
JEL-codes: C12 C13 C22 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2007-06, Revised 2009-03
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Published in Communications in Statistics. Theory and Methods (forthcoming)
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Working Paper: Spurious Instrumental Variables (2008)
Working Paper: Spurious Instrumental Variables (2007)
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