Basic Econometrics 5th Edition by Damodar Gujarati,Dawn Porter

Exercise 3

In studying the movement in the production workers' share in the value added (i.e., labor's share), the following models were considered by Gujarati:*
Model A:
Model B:
where Y = labor's share and t = time. Based on annual data for 1949-1964, the following results were obtained for the primary metal industry:
Model A:
Model B:
where the figures in the parentheses are t ratios.
a. Is there serial correlation in model A In model B
b. What accounts for the serial correlation
c. How would you distinguish between "pure'' autocorrelation and specification bias