FIGURE 12.12 Hypothetical regression residuals plotted against time.

12.13. Based on the Durbin-Watson d statistic, how would you distinguish "pure" autocorrelation from specification bias?

12.14. Suppose in the model

Yt = Pi + Pi Xt + ut the us are in fact serially independent. What would happen in this situation if, assuming that ut = p ut-i + et, we use the generalized difference regression

Yt - p Yt-i = Pi(i - p) + Pi Xt - pPi Xt_i + et Discuss in particular the properties of the disturbance term et.


12.15. In a study of the determination of prices of final output at factor cost in the United Kingdom, the following results were obtained on the basis of annual data for the period 1951-1969:

PFt = 2.033 + 0.273Wt — 0.521Xt + 0.256Mt + 0.028Mt—1 + 0.121PFt—1 se = (0.992) (0.127) (0.099) (0.024) (0.039) (0.119)

where PF = prices of final output at factor cost, W = wages and salaries per employee, X = gross domestic product per person employed, M = import prices, Mt—1 = import prices lagged 1 year, and PFt—1 = prices of final output at factor cost in the previous year.*

"Since for 18 observations and 5 explanatory variables, the 5 percent lower and upper d values are 0.71 and 2.06, the estimated d value of 2.54 indicates that there is no positive autocorrelation." Comment.

12.16. Give circumstances under which each of the following methods of estimating the first-order coefficient of autocorrelation p may be appropriate:

a. First-difference regression b. Moving average regression c. Theil-Nagar transform d. Cochrane and Orcutt iterative procedure e. Hildreth-Lu scanning procedure f. Durbin two-step procedure

12.17. Consider the model:

Ut = P1 Ut-1 + P2 Ut-2 + St that is, the error term follows an AR(2) scheme, and where et is a white noise error term. Outline the steps you would take to estimate the model taking into account the second-order autoregression. 12.18. Including the correction factor C, the formula for j?GLS given in (12.3.1) is

Was this article helpful?

0 0
Rules Of The Rich And Wealthy

Rules Of The Rich And Wealthy

Learning About The Rules Of The Rich And Wealthy Can Have Amazing Benefits For Your Life And Success. Discover the hidden rules and beat the rich at their own game. The general population has a love / hate kinship with riches. They resent those who have it, but spend their total lives attempting to get it for themselves. The reason an immense majority of individuals never accumulate a substantial savings is because they don't comprehend the nature of money or how it works.

Get My Free Ebook

Post a comment