Slides_Econ140A_Serial_Correlation

Slides_Econ140A_Serial_Correlation - 1 Serial Correlation...

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Unformatted text preview: 11/8/2011 1 Serial Correlation Copyright Dick Startz 1 Goals • Define serial correlation • What happens to OLS? • How to do GLS? • Testing for serial correlation • Serial correlation and lagged dependent variables • Higher order serial correlation Copyright Dick Startz 2 Assumptions 1. ? ? = ¡ ¢ ?¡ + 2 ¢ ?2 + ⋯ + ? ¢ ?? + ? , true model of DGP £. ¤ nonrandom (or exogenous), ¤ not perfectly collinear 3. ¥ ? = 0 ∀¦ 4. Homoskedasticity ¥ ? § = ¨ ? 2 , ¦ = © 0, ¦ ≠ © 5. (sometimes) ~ª?«¬ Copyright Dick Startz 3 Word “correlation” pops up in two completely unrelated contexts Copyright Dick Startz 4 Terminology • General: E ­® = ? ,­® ≠ 0 • Specific: Autocorrelation Autoregressive AR(1) = ¯ −¡ + , ¯ < 1 Copyright Dick Startz 5 • What facts about OLS are still true? – Still best fit – Still unbiased • Unless lagged dependent variable • Which now fail, and is there a fix-up within OLS?...
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This note was uploaded on 12/26/2011 for the course ECON 140a taught by Professor Staff during the Fall '08 term at UCSB.

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Slides_Econ140A_Serial_Correlation - 1 Serial Correlation...

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