Using 30 time series observations, the regression Y= B1 + B2 X + B3 Z + u is estimated and some results are reported as the following; Y't = 2.04 + 0.25 Xt – 0.12 Zt se (0.86) (0.08) (0.17) and the estimated first order autocorrelation coefficient (rho) P'= 0.92 b) Suppose you found the presence of 1st order autocorrelation problem in the errors, show how you would overcome this problem using GLS(Generalized Least Squares) (or feasible LS) estimation technique.
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
Using 30 time series observations, the regression Y= B1 + B2 X + B3 Z + u is estimated and some results are reported as the following;
Y't = 2.04 + 0.25 Xt – 0.12 Zt
se (0.86) (0.08) (0.17)
and the estimated first order autocorrelation coefficient (rho) P'= 0.92
b) Suppose you found the presence of 1st order autocorrelation problem in the errors, show how you would overcome this problem using GLS(Generalized Least Squares) (or feasible LS) estimation technique.
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