Explain Why It Is Important to Test for Autocorrelation When

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The Answer is The lagged dependent variable is a function of the lagged error term If the errors are autocorrelated, then the current error term is correlated with the error term from the previous period, which means that the current error term is correlated with the lagged dependent variable We can estimate an OLS model with a lagged dependent variable and then use standard tools to assess if the errors are correlated If they are not correlated, we can use the OLS results Otherwise, we need to ρ-transform the data

Explain Why It Is Important to Test for Autocorrelation When

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