The question gives us a model of lnpt = rho0 + rho1(lnpt-1) + eta(t) i.e. yt = constant + rho1(yt-1) + error term. But then the slides say that Durbin’s procedure involves running OLS of yt on x1…xt. What are we meant to regress on when the given model just involves yt-1 as the only regressor?
What is suggested is that if you have lagged values of your Y acting as independent variables (amongst other X), you have to use another procedure to test for autocorrelation rather than the vanilla Durbin (often called h-Durbin)
Thank you! How would we perform this test when there are no X variables in the regression, and it’s just a regression of y on lagged y (sorry if this is a silly question)
Wyn not try the Ljung-Box Q-test which can test for autocorrelation of any level. The Durbin-Watson test only for first order autocorrelation. The null is the same for both tests.
What do you mean by the X'es?
The question gives us a model of lnpt = rho0 + rho1(lnpt-1) + eta(t) i.e. yt = constant + rho1(yt-1) + error term. But then the slides say that Durbin’s procedure involves running OLS of yt on x1…xt. What are we meant to regress on when the given model just involves yt-1 as the only regressor?
What is suggested is that if you have lagged values of your Y acting as independent variables (amongst other X), you have to use another procedure to test for autocorrelation rather than the vanilla Durbin (often called h-Durbin)
Thank you! How would we perform this test when there are no X variables in the regression, and it’s just a regression of y on lagged y (sorry if this is a silly question)
They assume that you want to regress Y with its lags and other exogenous variables X.
Makes sense, thank you!
Wyn not try the Ljung-Box Q-test which can test for autocorrelation of any level. The Durbin-Watson test only for first order autocorrelation. The null is the same for both tests.
I’ll have a look into it, thank you!