Econometrics For Dummies

Chapter 12

Autocorrelation

In This Chapter

Examining autocorrelation patterns

Revealing the consequences of autocorrelation

Testing for autocorrelation

Correcting econometric models when autocorrelation is present

Autocorrelation, also known as serial correlation, may exist in a regression model when the order of the observations in the data is relevant or important. In other words, with time-series (and sometimes panel or logitudinal) data, autocorrelation is a concern. When a regression model is estimated using data of this nature, the value of the error in one period may be related to the value of the error in another period (autocorrelation), which results in a violation of a classical linear regression model (CLRM) assumption. (I tell you all about these in Chapter 6.)

In this chapter, you discover exactly why autocorrelation is problematic, how to identify different autocorrelation patterns, and how to modify a standard regression model in the presence of autocorrelation.

Examining Patterns of Autocorrelation

As I explain in Chapter 6, most of the CLRM assumptions that allow ...