{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture14

# Lecture14 - Lecture 14 Serial Correlation Econ 444 Winter...

This preview shows pages 1–5. Sign up to view the full content.

Lecture 14: Serial Correlation Econ 444, Winter 2010 March 3, 2010

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Serial Correlation : Motivation When we have time series data we have information on same variable at different points in time. It is not surprising to find that there is a high degree of correlation between adjacent time observations of the same variable. For example, 1 In stock market, price of IBM stock in Feb 2008 can be correlated with the price in Jan. 2 Output for 2007 in a chemical manufacturing plant will be correlated with output in 2006.
Nature of Serial Correlation Serial Correlation or equivalently autocorrelation occurs when the error in one observation is correlated with the error in another observation. Classical Assumption IV is violated Serial correlation is a time series problem. If the correlation is with the previous observation error, this is called 1st order serial correlation or first order autocorrelation.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Statistical Model One of the most commonly used model for serially correlated stochastic error i is AR(1) : i = ρ i - 1 + u i u i : no autocorrelation; regular error term satisfying all classical assumptions.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern