Spurious Structural Stability

Abstract

It is well known that the omission of variables from a model with constant parameters can induce the appearance of structural instability if the correlation between the included and omitted variables should change. What is less appreciated is that the converse is also true. The omission of variables from a model with changing parameters can induce the appearance of structural stability. This note provides an example and discusses the circumstances under which the phenomenon is likely. Copyright 1991 by Blackwell Publishers Ltd and The Victoria University of Manchester