Question: Using monthly data from January 1992 to December 2000, we estimate the following equation for lightweight vehicle sales: Îln (Sales t) = 2.7108 + 0.3987Îln

Using monthly data from January 1992 to December 2000, we estimate the following
equation for lightweight vehicle sales: Î”ln (Sales t) = 2.7108 + 0.3987Î”ln (Salestˆ’1) + Îµ t.
Table 5 gives sample autocorrelations of the errors from this model.
TABLE 5 Different Order Autocorrelations of Differences in the Logs of Vehicle Sales

A. Use the information in the table to assess the appropriateness of the specification given by the equation.
B. If the residuals from the AR(1) model above violate a regression assumption, how would you modify the AR(1) specification?

t-Statistic Lag Autocorrelation Standard Error 0.9358 0.0962 9.7247 0.8565 0.0962 8.9005 8.4001 3 0.8083 0.0962 0.0962 0.7723 8.0257 0.7476 7.7696 0.0962 0.7326 0.0962 7.6137 0.6941 0.0962 7.2138 6.6025 8. 0.6353 0.0962 0.5867 0.0962 6.0968 10 0.5378 0.0962 5.5892 0.4745 4.9315 11 0.0962 0.4217 4.3827 12 0.0962 4. 6. 9.

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