# Question: The omission of an important independent variable from a time series

The omission of an important independent variable from a time-series regression model can result in the appearance of auto correlated errors. In Example 13.7 we estimated the model

yt = β0 + β1x1t + εt

relating profit margin to net revenue per dollar for our savings and loan data. Carry out a Durbin-Watson test on the residuals from this model. What can you infer from the results?

yt = β0 + β1x1t + εt

relating profit margin to net revenue per dollar for our savings and loan data. Carry out a Durbin-Watson test on the residuals from this model. What can you infer from the results?

**View Solution:**## Answer to relevant Questions

An economist wants to estimate a regression equation relating demand for a product (Y) to its price (X1) and income (X2). It is to be based on 12 years of quarterly data. However, it is known that demand for this product is ...The following model was fitted to data on 90 German chemical companies: where the numbers in parentheses are estimated coefficient standard errors and y = share price x1 = earnings per share x2 = funds flow per share x3 = ...A market researcher is interested in the average amount of money per year spent by students on entertainment. From 30 years of annual data, the following regression was estimated by least squares: where yt = expenditure per ...An economist has asked you to develop a regression model to predict consumption of service goods as a function of disposable personal income and other important variables. The data for your analysis are found in the data ...Health care cost is an increasingly important part of the United States economy. In this exercise you are to identify variables that are predictors for the cost of physician and clinical services, either individually or in ...Post your question