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Time-series , regression. Problems. Raffolovich.

=====================Larry Raffolovich, 07 Mar 1996========ssc Message-ID: <960307.102159.EST.LR096@cnsibm.albany.edu> From: "L. Raffalovich" <LR096@CNSIBM.ALBANY.EDU> Subject: Re: Regression, multicolinearity and time series On Tue, 5 Mar 1996 23:06:48 GMT Barry DeCicco <bdecicco@SUNM4048AS.SPH.UMICH.EDU> wrote: >(I will avoid snappy comments about economists. I will avoid >snappy comments about economists. I will avoid ....) > > There has been a lot of research done, on dealing with correlated >randomness in linear models. For a good start, I'd recommend >a book by Diggle, Liang and Zeger (apologies for the spelling), >'Analysis of Longitudinal Data'. It is strongly geared to >the analysis of data which consists of many relatively short >time series, such as would be found in biostatistics. > > When dealing with two or more time series, spurious correlations >feel right at home, and will dive into your regression. You have >the problem that there are probably many drivers acting on both >series, making them move together to some extent. > > I saw an artical in a mathematical economics journal (specific >title forgotten), which proved that two non-stationary time >series will tend to increasing correlation, as the number of observation >points goes to infinity. There's the classic example of taking the >non-inflation-adjusted prices of any two commodities, and showing >that one predicts the other (in a linear model sense). > > Frankly, I haven't the faintest idea of how people deal with this, >when looking at purely observational data, with long time series, >such as occur in economics and other social data. I await >someone to post methods or references here. Some references on spurious regression with time series: Nelson, Charles R. and Charles I. Plosser, "Trends and Random Walks in Macroeconomic Time Series: Some Evidence and Implications". Journal of Monetary Economics 10:139-62 (1982). Phillips, Peter C.B., "Understanding Spurious Regression in Econometrics". Journal of Econometrics 33:311-40 (1986). Stock, James H. and Mark W. Watson, "Variable Trends in Economic Time Series". Journal of Economic Perspectives 2:147-74 (1988). I provide a less technical discussion of spurious regression in "Detrending Time Series", Sociological Methods and Research 22:492-519 (1994). Also, recent econometrics texts (e.g. the third edition of Gujarati's Basic Econometrics (1995)) have detailed discussions of non-stationary time series. * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

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