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    Question

    Autocorrelated errors is

    about
    A an explanatory variable observation not being independent of another observation’s value of that same explanatory variable Correct Answer Incorrect Answer
    B an explanatory variable observation not being independent of observations on other explanatory variables Correct Answer Incorrect Answer
    C the error is correlated with an explanatory variable Correct Answer Incorrect Answer
    D the error associated with one observation not being independent of the error associated with another observation Correct Answer Incorrect Answer

    Solution

    Auto correlation is a characteristic of data which shows the degree of similarity between the values of the same variables over successive time intervals. When you have a series of numbers, and there is a pattern such that values in the series can be predicted based on preceding values in the series, the series of numbers is said to exhibit autocorrelation. This is also known as serial correlation and serial dependence. The existence of autocorrelation in the residuals of a model is a sign that the model may be unsound . Autocorrelation is diagnosed using a correlogram (ACF plot) and can be tested using the Durbin-Watson test.

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