If the residuals of a model containing lags of the dependent variable are autocorrelated, which one of the following could this lead to?
A) Biased but consistent coefficient estimates
B) Biased and inconsistent coefficient estimates
C) Unbiased but inconsistent coefficient estimates
D) Unbiased and consistent but inefficient coefficient estimates.

Question

Quizplus · Accepted Answer

When a model contains lags of the dependent variable and the residuals are autocorrelated, it can lead to biased and inconsistent coefficient estimates. This is because the presence of autocorrelation violates the assumption of no serial correlation in the error terms, which is crucial for the ordinary least squares (OLS) estimators to be unbiased and consistent.

If the Residuals of a Model Containing Lags of the Dependent