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A random walk through the Gibson paradox
Author(s) -
Corbae Dean,
Ouliaris Sam
Publication year - 1989
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950040307
Subject(s) - spurious relationship , econometrics , simple (philosophy) , inference , statistical inference , mathematics , class (philosophy) , economics , interest rate , nominal interest rate , regression , linear regression , mathematical economics , statistics , computer science , real interest rate , philosophy , epistemology , artificial intelligence , monetary economics
Evidence to support the Gibson paradox is often given in the form of a simple correlation between the nominal interest rate and the log of price level, or in the form of a simple linear regression between these two variables. Authors then show, using standard procedures of statistical inference, that the price level possesses a significant coefficient. We argue that this class of evidence is spurious since the nominal interest rate and the price level (both integrated variables) do not form a cointegrated system.