Question: (d) What do you understand by the term autocorrelation? (e) An econometrician suspects that the residuals of her model might be autocorrelated. Explain the steps

(d) What do you understand by the term autocorrelation?

(e) An econometrician suspects that the residuals of her model might be autocorrelated. Explain the steps involved in testing this theory using the DurbinWatson (DW) test.

(f) The econometrician follows your guidance in part (b) and calculates a value for the Durbin Watson statistic of 0.95. The regression has 60 quarterly observations and three explanatory variables (plus a constant term). Perform the test. What is your conclusion?

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