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Econometrics

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Moderate

Definition of an AR(1) Serial Autocorrelation

EMETRC-L1KKPG

Consider the model:

$$y_t = \beta_0 + \beta_1 X_t + u_t$$

What function represents an AR(1) serial correlation structure for the error term, $u_t$?

A

$u_t = \rho u_{t-1} + e_t,$ where $|\rho| < 1$

B

$u_t = \rho u_{t-1} + e_t,$ where $|\rho| = 1$

C

$u_t = \rho u_{t-1} + e_t,$ where $|\rho| > 1$

D

$u_t = \rho u_{t-1} + e_t,$ where $|\rho| = 0$

E

$u_t = \rho y_{t-1} + e_t,$ where $|\rho| < 1$