Is the Spurious Regression Problem Spurious?

Bennett McCallum

No 15690, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: So-called "spurious regression" relationships between random-walk (or strongly autoregressive) variables are generally accompanied by clear signs of severe autocorrelation in their residuals. A conscientious researcher would therefore not end an investigation with such a result, but would likely re-estimate with an autocorrelation correction. Simulations show, for several typical cases, that the test-rejection statistics for the re-estimated relationships are very close to the true values, so do not yield results of the spurious type.

JEL-codes: C22 C29 (search for similar items in EconPapers)
Date: 2010-01
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Published as McCallum, Bennett T., 2010. "Is the spurious regression problem spurious?," Economics Letters, Elsevier, vol. 107(3), pages 321-323, June.

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Journal Article: Is the spurious regression problem spurious? (2010)
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