In this paper we consider the situation where two independent random walks are used in various frequently-employed nonlinear test and estimation procedures. We show analytically and by simulation that all nonlinear test and estimation procedures wrongly indicate that (i) the two independent random walks have a significant nonlinear relationship, and (ii) the spurious nonlinear relationship becomes stronger as the sample size approaches infinity.
|Number of pages||6|
|Publication status||Published - 2005 Jun|
All Science Journal Classification (ASJC) codes
- Economics and Econometrics