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FIGURE 12.3 (a) Positive and (b) negative autocorrelation.

FIGURE 12.3 (a) Positive and (b) negative autocorrelation.

In summary, then, there are a variety of reasons why the error term in a regression model may be autocorrelated. In the rest of the chapter we investigate in some detail the problems posed by autocorrelation and what can be done about it.

It should be noted also that autocorrelation can be positive (Figure 12.3a) as well as negative, although most economic time series generally exhibit positive autocorrelation because most of them ether move upward or downward over extended time periods and do not exhibit a constant up-and-down movement such as that shown in Figure 12.3b.

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