Suppose you have time series data and estimate the following model y = β0 + β1x1 + ε. When you estimate the model, you find that there are correlated observations (serial correlation). You choose to ignore this issue. What are the consequences? A/ The predictions are biased, but the hypothesis tests are valid. B/ The predictions are not biased, but the hypothesis tests are invalid. C/ Both the predictions and the hypothesis tests are valid. D/ Both the predictions and the hypothesis tests are not valid. Choose the correct answer and briefly explain.
Suppose you have time series data and estimate the following model y = β0 + β1x1 + ε. When you estimate the model, you find that there are correlated observations (serial correlation). You choose to ignore this issue. What are the consequences? A/ The predictions are biased, but the hypothesis tests are valid. B/ The predictions are not biased, but the hypothesis tests are invalid. C/ Both the predictions and the hypothesis tests are valid. D/ Both the predictions and the hypothesis tests are not valid. Choose the correct answer and briefly explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose you have time series data and estimate the following model y = β0 + β1x1 + ε. When you estimate the model, you find that there are correlated observations (serial correlation). You choose to ignore this issue. What are the consequences?
A/ The predictions are biased, but the hypothesis tests are valid.
B/ The predictions are not biased, but the hypothesis tests are invalid.
C/ Both the predictions and the hypothesis tests are valid.
D/ Both the predictions and the hypothesis tests are not valid.
Choose the correct answer and briefly explain.
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