A a durbin watson statistic could indicate either the

Question

1. Serial Correlation

a. A Durbin Watson statistic could indicate either the presence of "pure" or "impure" autocorrelation:

• i Describe a specific souce of "pure" and "impure" serial correlation.
• ii. Which is more detrimental to a model? Why ?

b. Given a model "infected" with first-order autocorrelation:

• i. Why are the t-statistics likely to be misleading?
• ii. What danger does this pose to the researcher?

c. Given Y_t= B₀X_t +e_t and Y_t-1 = B₀+B₁Xt-1+e_t-1,mathematically derive the Cochrane-Orcutt generalized difference equation whose parameters will be purged of first-order autocorrelation.