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Spurious non-linear regressions in econometrics

Lee, Y.; Kim, T.; Newbold, P.

Authors

Y. Lee

T. Kim

P. Newbold



Abstract

In this paper we consider the situation where two independent random walks are used in various frequently-employed nonlinear test and estimation procedures. We show analytically and by simulation that all nonlinear test and estimation procedures wrongly indicate that (i) the two independent random walks have a significant nonlinear relationship, and (ii) the spurious nonlinear relationship becomes stronger as the sample size approaches infinity.

Citation

Lee, Y., Kim, T., & Newbold, P. (2005). Spurious non-linear regressions in econometrics. Economics Letters, 87(3), 301-306. https://doi.org/10.1016/j.econlet.2004.10.016

Journal Article Type Article
Publication Date Jun 1, 2005
Deposit Date Feb 20, 2009
Journal Economics Letters
Print ISSN 0165-1765
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 87
Issue 3
Pages 301-306
DOI https://doi.org/10.1016/j.econlet.2004.10.016
Keywords Spurious nonlinearity, Random walk, Nonlinear tests.
Public URL https://durham-repository.worktribe.com/output/1625218


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