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Dynamic Econometrics$
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David F. Hendry

Print publication date: 1995

Print ISBN-13: 9780198283164

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198283164.001.0001

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Dynamics and Interdependence

Dynamics and Interdependence

Chapter:
(p.122) 4 Dynamics and Interdependence
Source:
Dynamic Econometrics
Author(s):

David F. Hendry (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0198283164.003.0004

When two time series are integrated but not causally related, conventional tests reject up to 80% under the null, at a 5% nominal level. This ‘nonsense regressions’ phenomenon is analysed, and detrending is shown not to solve the problem. Integrated variables that are connected are cointegrated. Since dynamics and cross‐variable interdependence interact, both sequential and conditional factorizations of data‐density functions are needed.

Keywords:   cointegration, conditional factorization, detrending, integrated time series, nonsense regression, sequential factorization

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