{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Wooldridge PPT ch12

Fall 2008 under econometrics prof keunkwan ryu 5

Info iconThis preview shows pages 5–9. 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 Document Right Arrow Icon

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

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

Unformatted text preview: Fall 2008 under Econometrics Prof. Keunkwan Ryu 5 Testing for AR(1) Serial Correlation (continued) If the regressors are not strictly exogenous, then neither the t or DW test will work Regress the residual (or y ) on the lagged residual and all of the x ’s The inclusion of the x ’s allows each x tj to be correlated with u t-1 , so don’t need assumption of strict exogeneity Fall 2008 under Econometrics Prof. Keunkwan Ryu 6 Testing for Higher Order S.C. Can test for AR( q ) serial correlation in the same basic manner as AR(1) Just include q lags of the residuals in the regression and test for joint significance Can use F test or LM test, where the LM version is called a Breusch-Godfrey test and is ( n-q ) R 2 using R 2 from residual regression Can also test for seasonal forms Fall 2008 under Econometrics Prof. Keunkwan Ryu 7 Correcting for Serial Correlation Start with case of strictly exogenous regressors, and maintain all G-M assumptions except no serial correlation Assume errors follow AR(1) so u t = ρ u t-1 + e t , t =2,…, n Var( u t ) = σ 2 e / (1- ρ 2 ) We need to try and transform the equation so we have no serial correlation in the errors Fall 2008 under Econometrics Prof. Keunkwan Ryu 8 Correcting for S.C. (continued) Consider that since y t = β + β 1 x t + u t , then y t-1 = β + β 1 x t-1 + u...
View Full Document

{[ snackBarMessage ]}

Page5 / 14

Fall 2008 under Econometrics Prof Keunkwan Ryu 5 Testing...

This preview shows document pages 5 - 9. Sign up to view the full document.

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