INTRODUCTION TO ECONOMETRICS II ECO 306 NOUN 119
4.2.3.0 MAIN CONTENTS The significances of autocorrelation for OLS are to some extent comparable to those of heteroscedasticity. The regression
coefficients remain unbiased, but OLS is inefficient because one can find an alternative unbiased estimator with smaller variance.
The other main concern, which should
not be mixed up with the first, is that the standard
errors are estimated wrongly, probably being biased downwards. Finally, although in general autocorrelation does not cause
OLS estimates to be biased, there is an important special case where it does.
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