National open university of nigeria introduction to econometrics II eco 356

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Introduction to Econometrics ECO 356 Course Guide and Course Material
Introduction to Econometrics ECO 356 Course Guide and Course Material

INTRODUCTION TO ECONOMETRICS II

ECO 306

NOUN
121

Figure 4.2 Negative Autocorrelation
When an error term
at time period t is correlated with error terms in time series, the correlation between
and
is called an autocorrelation of order k. The correlation between
and
is the first-order autocorrelation and is usually denoted by

The correlation between
and
is called the second order autocorrelation and is denoted by

, and soon. There are (n - 1) such autocorrelations if we have n observations. However, we cannot hope to estimate all of these from our data. Hence we often assume that these (n - 1) autocorrelations can be represented in terms of one or two parameters.

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