(Requires Appendix material)Your textbook states that in "the distributed lag regression model,the error term ut can be correlated with its lagged values.This autocorrelation arises,because,in time series data,the omitted factors that comprise ut can themselves be serially correlated."
(a)Give an example what the authors have in mind.
(b)Consider the ADL model,where the X's are strictly exogenous,and there is no autocorrelation (and/or heteroskedasticity)in the error term. (d)Explain why autocorrelation in this model can be seen as a "simplification," not a "nuisance." Can you use the F-test to test the above hypothesis? Why or why not?

Question

(Requires Appendix material)Your textbook states that in "the distributed lag regression model,the error term ut can be correlated with its lagged values.This autocorrelation arises,because,in time series data,the omitted factors that comprise ut can themselves be serially correlated."
(a)Give an example what the authors have in mind.
(b)Consider the ADL model,where the X's are strictly exogenous,and there is no autocorrelation (and/or heteroskedasticity)in the error term.  (d)Explain why autocorrelation in this model can be seen as a "simplification," not a "nuisance." Can you use the F-test to test the above hypothesis? Why or why not?

Quizplus · Accepted Answer

The Answer of (Requires Appendix material)Your textbook states that in "the distributed lag regression model,the error term ut can be correlated with its lagged values.This autocorrelation arises,because,in time series data,the omitted factors that comprise ut can themselves be serially correlated."
(a)Give an example what the authors have in mind.
(b)Consider the ADL model,where the X's are strictly exogenous,and there is no autocorrelation (and/or heteroskedasticity)in the error term.  (d)Explain why autocorrelation in this model can be seen as a "simplification," not a "nuisance." Can you use the F-test to test the above hypothesis? Why or why not?

(Requires Appendix Material)Your Textbook States That in "The Distributed Lag