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Question 2 To show that two variables, each with deterministic trend, can lead to spurious regression, Charemza et al. obtained the following regression based on 30 observations 5.920.030X (9.9) (21.2) R2 0.92 d 0.06 a. What kind of trend does Y exhibit? and X?

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Ans ) When a series of measurement of process are treated as time series trend estimation can be used to make and justify statements about tendencies in the data by relating the measurement to the times at which they occurred. In particular it may be useful to determine if measurement exhibit an increasing or decreasing trend which is statistically distinguished from random behaviour. In the above question equation the + sign shows there is upward trend in the Y by change in the X. Y is the dependent variable on X i.e X is the stochastic variable or random variable.

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