Question: (a)What is spurious regression? Explain. (b)Assuming , randomly generate 1000 observations of variables X and Y using the following equations: X t = pX t-1

(a)What is spurious regression? Explain.

(b)Assuming , randomly generate 1000 observations of variables X and Y using the following equations:

X_t= pX_t-1 + e_t

Y_t = pY_t-1 + e_t

Report the graphs of X and Y.

(c)Run the regression: and report the estimated results.

(d)What did you expect about the magnitudes and R-square? How are the estimated values different from your expectations?

(e) In HW 2 problem 1, you estimated a regression of personal consumption expenditures (PCE) on personal disposable income (PDI). Both PCE and PDI were time series data. Explain why that regression was not spurious.

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