The following regression model shows the cash balance for a household which based on the expenditures on food, the expenditures on entertainments and the lagged cash balance for the past 30 months.

where
ŷ = Cash balance
x₁ = Expenditures on food
x₂ = Expenditures on entertainments

a. Estimate the autocorrelation parameter.

b. What is autocorrelation?

c. Test at the 10% level the null hypothesis that, all else being equal, the model’s error terms are autocorrelated.

Transcribed Image Text:

ŷt = 1.6027 R² = 0.9227, = 0.1024x10.6869x2+ + 0.5284y+-1 (0.3427) (0.3678) d 1.8624 and sc = (1.2404) = 0.1228