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Consider the following regression: unem = Bo + Binfi + Bzinfi-1+Bsyear +24 where unem is the civilian unemployment rate and inf is the CPI

Consider the following regression: unem = Bo + Binfi + Bzinfi-1+Bsyear +24 where unem is the civilian unemployment rate and inf is the CPI inflation rate. Assume 24-pu-1+4 with p / 0. Answer the following questions. 1. What is serial correlation? Explain. 2. Write the transformed model that is estimated by GLS. 3. Outline the intuition behind the BG test for serial correlation. 4. If 4-p4-1+244-2 + e, the GLS model described in class will not fix the problems with OLS. How can we get around this problem?

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