An econometrician has estimated the following model for UK consumption using annual data for the period 1968 to 1998.

CNt = 211.3974 + 0.97345 YDt + ut

(36.71) (0.009739)

where CN is consumption expenditure and YD is disposable income - both measured in millions of . Standard errors are given in brackets below the coefficients.

The econometrician then runs the following regression based on the residuals of the first regression:

ut = 0.76377ut1 + et

i. Use this second regression to calculate an estimate of the Durbin-Watson statistic for the first regression and perform a test for the presence of autocorrelation in the consumption function. (40 marks)