A random walk through the Gibson paradox | Zendy

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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.

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