INTRODUCTION TO ECONOMETRICS II ECO 306 NOUN 61 This condition states that there should be no systematic association between the values of the disturbance term in any two observations. For example, just because the disturbance term is large and
positive in one observation, there should be no tendency for it to be large and positive in the next (or
large and negative,
for that matter,
or small and positive, or small and negative. The values of the disturbance term should be independent of one another.
The condition implies that μiμj, the
population covariance between μiandμj, is 0, because
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