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© Christian Müller 2019 |
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When «testing» for rationality such as in UIP (uncovered interest parity) regressions researchers more often than not ignore the fact that their data has been generated by uncertainty («your data is from here»). Running stochastic regressions («your theory is from here») with these data implies a severe mis-match between the properties of the data and the capability of the statistic analysis. |
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The above picture illustrates this confusion. |
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No wonder, therefore, that your empirical results are «inconclusive» at best and some economists cry loud out «PUZZLE». |
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EXCLUSIVE: READ MORE IN SECTION 2.2.2 OF MY BOOK. |
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chapter 2.2.2
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UPDATE: Check type two here here. |
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© Christian Müller 2019 |
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Jacobs University Bremen |
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www.s-e-i.ch |
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