Department of Economics and Business Economics

Polynomial Regressions and Nonsense Inference

Research output: Working paperResearch

Documents

  • rp13_40

    Submitted manuscript, 309 KB, PDF document

  • Daniel Ventosa-Santaulària, División de Economía, CIDE, Mexico
  • Carlos Vladimir Rodríguez-Caballero, Denmark
Polynomial specifications are widely used, not only in applied economics, but also in epidemiology, physics, political analysis, and psychology, just to mention a few examples. In many cases, the data employed to estimate such estimations are time series that may exhibit stochastic nonstationary behavior. We extend Phillips’ (1986) results by proving an inference drawn from polynomial specifications, under stochastic nonstationarity, is misleading unless the variables cointegrate. We use a generalized polynomial specification
as a vehicle to study its asymptotic and finite-sample properties. Our results, therefore, lead to a call to be cautious whenever practitioners estimate polynomial regressions.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages16
Publication statusPublished - 18 Nov 2013
SeriesCREATES Research Papers
Number2013-40

See relations at Aarhus University Citationformats

Download statistics

No data available

ID: 56976134