To show that two variables, each with deterministic trend, can lead to spurious regression, Charemza et al.
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To show that two variables, each with deterministic trend, can lead to spurious regression, Charemza et al. obtained the following regression based on 30 observations:
Ŷt = 5.92 + 0.030Xt
t = (9.9) (21.2)
R2 = 0.92 d = 0.06
where Y1 = 1, Y2 = 2, . . . , Yn = n and X1 = 1, X2 = 4, . . . , Xn = n2.
a. What kind of trend does Y exhibit? and X?
b. Plot the two variables and plot the regression line. What general conclusion do you draw from this plot?
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a b Y exhibits a linear trend whereas X represents a quadratic tren...View the full answer
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Saud Ur Rehman
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