The spurious regression phenomenon in least squares occurs for a wide range of data generating processes, such as driftless unit roots, unit roots with drift, long memory, trend and broken‐trend stationarity. Indeed, spurious regressions have played a fundamental role in the building of modern time series econometrics and have revolutionized many of the procedures used in applied macroeconomics. Spin‐offs from this research range from unit‐root tests to cointegration and error‐correction models. This paper provides an overview of results about spurious regression, pulled from disperse sources, and explains their implications.

Instituto de Economía Pontificia Universidad Católica de Chile