Is the Spurious Regression Problem Spurious?

10 Pages Posted: 1 Feb 2010 Last revised: 5 Sep 2010

See all articles by Bennett T. McCallum

Bennett T. McCallum

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: January 2010

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.

Suggested Citation

McCallum, Bennett T., Is the Spurious Regression Problem Spurious? (January 2010). NBER Working Paper No. w15690, Available at SSRN: https://ssrn.com/abstract=1544721

Bennett T. McCallum (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

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