Department of Economics and Business Economics

A comment on ‘resolving spurious regressions and serially correlated errors’

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

  • Daniel Ventosa-Santaulària, Centro de Investigación y Docencia Económicas (CIDE)
  • ,
  • J. Eduardo Vera-Valdés
  • Alejandra I. Martínez-Olmos, Universidad de Guanajuato
In order to diminish size distortions of the t test in a time series linear specification, Agiakloglou (Agiakloglou in Empir Econ, 45(3):1361–1366, 2013) proposed to (1) include the first lag of the dependent variable as a regressor or (2) estimate it using the first differences of the variables. He provided finite-sample evidence to support his proposal. In this paper, we extend the Monte Carlo experiment to different data-generating processes and calculate the asymptotic behavior of the modified specifications. We show that including the lag of the dependent variable as a regressor reduces size distortions when the variables are driftless unit roots, but this approach does not hold under the presence of long memory, nonlinearities, or structural breaks.
Original languageEnglish
JournalEmpirical Economics
Volume51
Issue3
Pages (from-to)1289-1298
Number of pages10
ISSN0377-7332
DOIs
Publication statusPublished - 2016

    Research areas

  • Autocorrelation corrective methods, Fractional integration, Shifts, Spurious regression, Unit roots

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