HW10_sol

HW10_sol - ECON 414 SOLUTION TO HOMEWORK 10 Spring 2010...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECON 414 SOLUTION TO HOMEWORK 10 Spring 2010 10.1 (i) Disagree. Most time series processes are correlated over time, and many of them strongly correlated. This means they cannot be independent across observations, which simply represent different time periods. Even series that do appear to be roughly uncorrelated such as stock returns do not appear to be independently distributed, as you will see in Chapter 12 under dynamic forms of heteroskedasticity. (ii) Agree. This follows immediately from Theorem 10.1. In particular, we do not need the homoskedasticity and no serial correlation assumptions. (iii) Disagree. Trending variables are used all the time as dependent variables in a regression model. We do need to be careful in interpreting the results because we may simply find a spurious association between y t and trending explanatory variables. Including a trend in the regression is a good idea with trending dependent or independent variables. As discussed in Section 10.5, the usual R-squared can be misleading when the dependent variable is trending. (iv) Agree. With annual data, each time period represents a year and is not associated with any season....
View Full Document

This note was uploaded on 11/21/2011 for the course ECON 404 taught by Professor Carrillo during the Spring '11 term at USC.

Page1 / 4

HW10_sol - ECON 414 SOLUTION TO HOMEWORK 10 Spring 2010...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online