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SPURIOUS REGRESSION BETWEEN I(1) PROCESSES WITH INFINITE VARIANCE ERRORS

Published online by Cambridge University Press:  01 August 1999

Wen-Jen Tsay
Wen-Jen Tsay
Affiliation:
National Chi Nan University
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Abstract

This paper considers spurious regression between integrated processes with stable errors. Our results show that the t-ratios diverge at the rate of √T, which is identical to what Phillips (1986, Journal of Econometrics 33, 311–340) has obtained for the Gaussian case. Therefore, it is the long memory in the dependent variable and regressors, instead of the moment conditions of the error terms, that causes the spurious regression.

Type
Research Article
Information
Econometric Theory , Volume 15 , Issue 4 , August 1999 , pp. 622 - 628
Copyright
© 1999 Cambridge University Press

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