Question: Consider the simple linear regression model y, = {3 0 + f3 1x + 1 , where the errors are generated by the second-order

Consider the simple linear regression model y, = {3 0 + f3 1x + £ 1 , where the errors are generated by the second-order autoregressive process

Discuss how the Cochrane-Orcutt iterative procedure could be used in this situation. What transformations would be used on the variables y1 and x,?
How would you estimate the parameters p 1 and p 2 ?

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