If there is a positive correlation between the error terms from adjacent time-series observations,the computed Student's t statistic for the coefficient will be large.

Question

Quizplus · Accepted Answer

A positive correlation between error terms from adjacent time-series observations indicates the presence of serial correlation. In such cases, the standard errors of the coefficients are underestimated, leading to an increase in the t-statistic. Therefore, a positive correlation between the error terms increases the t-statistic, making it large.

If There Is a Positive Correlation Between the Error Terms