Investigate the consequences of dropping them

Reference no: EM131132370

Perform a logarithmic regression of expenditure on your category of consumer expenditure on income and price using an AR(1) estimation technique. Perform a second regression with the same variables but adding the lagged variables as regressors and using OLS. With an h test, check that the second specification is not subject to autocorrelation .Explain why the first regression is a restricted version of the second, stating the restrictions, and check whether the restrictions appear to be satisfied by the estimates of the coefficients of the second regression. Perform a common factor test. If the AR(1) model is rejected, and there are terms with insignificant coefficients in the second regression, investigate the consequences of dropping them.

Reference no: EM131132370

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