**Today:**

- Finish chapter 12 (through page 366).

**Next Time**:

- Begin chapter 8.

**Video**:

Lecture 9 [Google video] - Winter 2008

Lecture 9 [Windows Media] - Winter 2008

Economics 421 Lecture 9 |

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 u_{t} = Y_{t} - b_{1} - b_{2}X_{2t} - ... - b_{k}X_{kt} where the b's are the estimated betas using the transformed ("starred") variables in step 4. Also, equation (9.7) is the equation for the residuals, i.e. u_{t} = ρu_{t-1} + e_{t}, or use the approximation ρ = 1 - .5d, where d is the Durbin-Watson statistic (see text).

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