Introductory Econometrics 4th Edition by Jeffrey Wooldridge

تمرين 4

Suppose that the idiosyncratic errors in (14.4), {uit: t = 1, 2,...,T}, are serially uncorrelated with constant variance, 2u. Show that the correlation between adjacent differences, uit and ui,t+1, is -.5. Therefore, under the ideal FE assumptions, first differencing induces negative serial correlation of a known value.