1. Time Series. Suppose you have quarterly data on new housing starts yt, interest rates rt, and real per-capital income gt. (a) Specify a model for housing starts that accounts for possible trends and seasonality in the variables (b) Even after accounting for trends and seasonality you suspect there may be serial correlation in the error term. What are the consequences of this for OLS? (c) Specity a test for a simple form of serial correlation. (d) Suppose you conclude based on this test that you do have a problem with serial correlation. Describe a solution.

MATLAB: An Introduction with Applications
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1. Time Series. Suppose you have quarterly
data on new housing starts yt, interest rates
rt, and real per-capital income gt.
(a) Specify a model for housing starts that
accounts for possible trends and seasonality
in the variables
(b) Even after accounting for trends and
seasonality you suspect there may be serial
correlation in the error term. What are the
consequences of this for OLS?
(c) Specity a test for a simple form of serial
correlation.
(d) Suppose you conclude based on this
test that you do have a problem with serial
correlation. Describe a solution.
Transcribed Image Text:1. Time Series. Suppose you have quarterly data on new housing starts yt, interest rates rt, and real per-capital income gt. (a) Specify a model for housing starts that accounts for possible trends and seasonality in the variables (b) Even after accounting for trends and seasonality you suspect there may be serial correlation in the error term. What are the consequences of this for OLS? (c) Specity a test for a simple form of serial correlation. (d) Suppose you conclude based on this test that you do have a problem with serial correlation. Describe a solution.
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