Spurious Regression

Abstract EN

The spurious regression phenomenon in least squares occurs for a wide range of data generating processes, such as driftless unit roots, unit roots with drift, long memory, trend and broken-trend stationarity.

Indeed, spurious regressions have played a fundamental role in the building of modern time series econometrics and have revolutionized many of the procedures used in applied macroeconomics.

Spin-offs from this research range from unit-root tests to cointegration and error-correction models.

This paper provides an overview of results about spurious regression, pulled from disperse sources, and explains their implications.