A Comment on ‘Resolving Spurious Regressions and Serially Correlated Errors’
Published in Empirical Economics, 2015
Recommended citation: Ventosa-Santaulària, D., and Vera-Valdés, J.E. and Martínez-Olmos, A.I. (2016). "A Comment on 'Resolving Spurious Regressions and Serially Correlated Errors'." Empirical Economics. 51(3). https://vbn.aau.dk/da/publications/a-comment-on-resolving-spurious-regressions-and-serially-correlat
In this paper, we extend Agiakloglou (Agiakloglou in Empir Econ, 45(3), 2013) 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.