Use the data of Exercise 17.22 but assume that

where X^∗_t are the desired sales. Estimate the parameters of this model and compare the results with those obtained in Exercise 17.22. How would you decide which is the appropriate model? On the basis of the h statistic, would you conclude there is serial correlation in the data?

Data from exercise 17.22

Consider the following model:

Y^∗_i = α + β₀X_t + u_t

where Y^∗ = desired, or long-run, business expenditure for new plant and equipment, X_t = sales, and t = time. Using the stock adjustment model, estimate the parameters of the long- and short run demand function for expenditure on new plant and equipment given in the following table.

How would you find out if there is serial correlation in the data?