Problems caused by stochastic trends include all of the following with the exception of
A)the estimator of an AR(1)is biased towards zero if it's true value is one.
B)the model can no longer be estimated by OLS.
C)t-statistics on regression coefficients can have a nonnormal distribution, even in large samples.
D)the presence of spurious regression..

Question

Quizplus · Accepted Answer

Stochastic trends in time series data can lead to several issues, such as biased estimators, non-normal distribution of t-statistics, and spurious regression results. However, it is not accurate to say that models with stochastic trends can no longer be estimated by Ordinary Least Squares (OLS); OLS can still be used, but the results may be misleading or incorrect if the presence of stochastic trends is not properly addressed.

Problems Caused by Stochastic Trends Include All of the Following