Document Type
Discussion Paper
Publication Date
6-1-1985
CFDP Number
757
CFDP Revision Date
1985-12-01
CFDP Pages
38
Abstract
This paper provides an analytical study of spurious regressions involving the levels of economic time series. As asymptotic theory is developed for regressions that relate independent random walks. It is shown that the usual t ratio significance tests do not possess limiting distributions but actually diverge as the sample size T approaches infinity. The Durbin-Watson statistic, on the other hand, converges in probability to zero. An alternative asymptotic theory is also analyzed. An alternative asymptotic theory is developed based on the concept of continuous data recording. This theory together with the large sample asymptotics that we present go a long way towards explaining the experimental results of Granger and Newbold (1974, 1977).
Recommended Citation
Phillips, Peter C.B., "Understanding Spurious Regressions in Econometrics" (1985). Cowles Foundation Discussion Papers. 997.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/997