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 Y t 5 92 0 030X t t (9 9) (21 2) R 2 0 92 d 0 06 where Y 1 1, Y 2 2, , Y n n and X 1 1, X 2 4, , X n n 2 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

Question: 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:

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:

Ŷ_t = 5.92 + 0.030X_t

t = (9.9) (21.2)

R² = 0.92 d = 0.06

where Y₁ = 1, Y₂ = 2, . . . , Y_n = n and X₁ = 1, X₂ = 4, . . . , X_n = 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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