Money, Income and Sunspots
Measuring Economic Relationships and the Effects of Differencing
University of Rochester, Rochester, NY 14627
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Journal of Monetary Economics, 4 (November 1978) 637-660
This paper discusses the question of whether economic time series regression
models should be estimated between the levels or the changes of the variables
of interest. We argue that many economic models should be estimated between
the changes of the variables, rather than the levels of the variables. In
addition, comparisons of the levels and changes regressions can be used as
a crude test of model specification. These issues are illustrated with
examples from Friedman and Meiselman's [1963] study of annual income and
consumption and with data on sunspot activity from 1897-1958.
Key words: Differencing, Stationarity, Spurious regressions
JEL Classifications: C22
Cited 93 times in the SSCI through April 1996
© Copyright 1978, Elsevier
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