Re: Letter form Bob Solow

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From "Lonnie K. Stevans" <acslks@xxxxxxxxxxxxxxxxx>
=====
>Sounds like a Type II error to me.  It is certainly plausible to observe the
presence of a unit
>root when the alternative hypothesis of no unit root is true, e.g., if the
probability of a Type
>II error was .10, then by performing 100 Monte Carlo simulations of random
walks, you will
>wind up making the "mistake" of accepting the null hypothesis of a unit root
ten times.
>Yaglom just happened to observe one of those outcomes and it would seem to me
that
>he should have repeated the experiment a number of times.
>

Unfortunately for you -- Yaglom did repeat the experiment -- and if fact so
did others that I have requested assign graduate students to do.  The results
are always the same -- by the n-th difference-- usually no more than the third
difference --, there appears to be something of statistical significance.

But Lonnie-- think before you pay lip service to type II errors to rationalize
any kind of nonsense.  If we know that two columns of data are merely random
numbers then there should be no relationship between the original columns or
any nth-difference of these columns.  Otherwise what do you mean by random
numbers?

When I tell these results to pure statisticians, and ask them how come, the
first question they ask is "Are you sure that the random number generatdr
really generates random numbers?" Only if the original data in the two columns
are in some sense nonrandom can you expect to find a statistical significance,
if not inthe original data, then in some nth difference.

Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 523
Knoxville, Tennessee 37996-0550
phone # (865)974-4221; fax #(561)737-8262;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html