Least Squares & Autocorrelation

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Least Squares & Autocorrelation

Postby einsler » Tue Oct 12, 2010 1:27 pm

I am having great success developing an econometric model for interest elasticity and excess reserves, but I need some advice on how to estimate my standard errors.

My data is time-series. Because of this I have been estimating least squares with Newey-West -- ls(n) -- standard errors. I would like to test for auto correlation. Do I stop estimating Newey-West -- i.e. drop the n in ls(n) -- or do I keep doing Newey-West and also consider an autocorrelation scheme by adding AR(1)? I do not know enough about least sqaures standard error estimation to know the answer to this question.

Also, how should the AR(1) coefficient be interpreted? If it is insignificant can I drop the autocorrelation assumption from my model? If it significant how should the coefficient (which is known as the rho statistic if I am not mistaken) be interpreted?

Thank you for your help.

I am using E-Views 7.

- Eric

Posts: 10
Joined: Thu Sep 09, 2010 11:00 am

Re: Least Squares & Autocorrelation

Postby patrix » Sat Oct 16, 2010 11:59 am

You should definetly check for autocorrelation. You should read the next presentation and I'm sure you will figure out what to do next:
http://faculty.wiu.edu/F-Dehkordi/DS-53 ... Models.ppt

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