Is the Spurious Regression Problem Spurious?

Bennett T. McCallum

NBER Working Paper No. 15690
Issued in January 2010
NBER Program(s):   EFG   ME   TWP

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.

(113 K)

Published: McCallum, Bennett T., 2010. "Is the spurious regression problem spurious?," Economics Letters, Elsevier, vol. 107(3), pages 321-323, June.

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