The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Spurious Regressions

  • Clive W. J. Granger
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_1373

Abstract

Simulations have shown that if two independent time series, each being highly autocorrelated, are put into a standard regression framework, then the usual measures of goodness of fit, such as t and R-squared statistics, will be badly biased and the series will appear to be ‘related’. This possibility of a ‘spurious relationship’ between variables in economics, particularly in macroeconomics and finance, restrains the form of model that can be used. An error-correction model will provide a solution in some cases.

Keywords

Autocorrelation Durbin–Watson statistic Econometrics Ordinary least squares (OLS) Regression Serial correlation Spurious regression Weiner process 

JEL Classifications

C1 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Clive W. J. Granger
    • 1
  1. 1.