Ch9 - The Nature of Serial Correlation The Consequences of...

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Unformatted text preview: The Nature of Serial Correlation The Consequences of Serial Correlation Testing for autocorrelation Remedies of Serial Correlatio Chapter 9 Serial Correlation Masao Ogaki Department of Economics, Ohio State University November 24, 2007 Masao Ogaki Department of Economics, Ohio State University Chapter 9 Serial Correlation The Nature of Serial Correlation The Consequences of Serial Correlation Testing for autocorrelation Remedies of Serial Correlatio The Nature of Serial Correlation Serial correlation is a time series problem when the Classical Assumption IV is violated. Typical pattern for yearly time series: persisting patterns model used mostly: regression error i satisfies i = ρ i- 1 + u i u i : no autocorrelation; regular error term ρ > 0: positive serial correlation (See Figure 9.1) ρ = 0: no serial correlation (See Figure 9.2) ρ < 0: negative serial correlation (See Figure 9.3) Masao Ogaki Department of Economics, Ohio State University Chapter 9 Serial Correlation The Nature of Serial Correlation The Consequences of Serial Correlation Testing for autocorrelation Remedies of Serial Correlatio | ρ | < 1: stable; | ρ | > 1: explosive Here, we rule out | ρ | > 1 Other forms of serial correlation: i = ρ 1 i- 1 + ρ 2 i- 2 + u i second-order serial correlation i = ρ i- 4 + u i It the data are quarterly, then this is a form of seasonality....
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This note was uploaded on 07/17/2008 for the course ECON 444 taught by Professor Ogaki during the Fall '07 term at Ohio State.

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Ch9 - The Nature of Serial Correlation The Consequences of...

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