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The Cochrane-Orcutt procedure:
One note: In step 5 when it says to use the estimated betas obtained in step 4 in equation (9.5), this means to go back to the origanal equation (9.5) and find ut = Yt - b1 - b2X2t - ... - bkXkt where the b's are the estimated betas using the transformed ("starred") variables in step 4.
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How do you get the coefficients and intercept for the new relation in terms of the old variables?
Let me explain. Suppose you have a simple linear regression between Y and X:
Y = b0 + b1 X
You then calculate rho^ for the residuals, transform the variables, regress, find rho^ again, etc., until you have:
Y* = b*0 + b1* X*
How do you find b0 and b1 valuables so that the equation can be expressed in terms of the original Y and X?
Posted by: Barton Paul Levenson | Wednesday, January 28, 2009 at 07:00 AM
"Values," not "valuables." It's early. I'm not really awake yet.
Posted by: Barton Paul Levenson | Wednesday, January 28, 2009 at 07:01 AM