Resolving spurious regressions and serially correlated errors |
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Authors: | Christos Agiakloglou |
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Institution: | 1. Department of Economics, University of Piraeus, Piraeus, Greece
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Abstract: | This study investigates the spurious regression phenomenon for two independent stationary and non-stationary processes and illustrates, using a Monte Carlo analysis, that estimation of the spurious regression in first differences or with a lagged dependent variable eliminates the spurious regression problem. Moreover, the results also apply in eliminating the problem of serially correlated errors as well as the problem of ARCH(1) errors. |
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