A comment on ‘resolving spurious regressions and serially correlated errors’
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. H...
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Veröffentlicht in: | Empirical economics 2016-11, Vol.51 (3), p.1289-1298 |
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Format: | Artikel |
Sprache: | eng |
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Zusammenfassung: | 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. |
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ISSN: | 0377-7332 1435-8921 |
DOI: | 10.1007/s00181-015-1035-7 |