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Introductory EconometricsIntuition, Proof, and Practice$
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Jeffrey Zax

Print publication date: 2011

Print ISBN-13: 9780804772624

Published to Stanford Scholarship Online: June 2013

DOI: 10.11126/stanford/9780804772624.001.0001

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What If the Disturbances Are Correlated?

What If the Disturbances Are Correlated?

(p.321) Chapter 9 What If the Disturbances Are Correlated?
Introductory Econometrics
Stanford University Press

This chapter deals with the possibility that the disturbances are correlated with each other. In this case, ordinary least squares (OLS) estimates are still unbiased. However, they are no longer best linear unbiased (BLU). In addition, the true variances of b and a are probably different from those given by the OLS variance formulas. In order to conduct inference, we can estimate their true variances. Best linear unbiased estimators can also be obtained by transforming the data so that the transformed disturbances have the properties of Chapter 5.

Keywords:   regression analysis, ordinary least squares, best linear unbiased estimators, autocorrelation, inference, variance

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