When the error terms are correlated across observations,one way to address the resulting econometric problem is to:
A) use weighted least squares.
B) use first differences rather than levels of the variables.
C) gather more data.
D) transform the independent variable.
E) eliminate covarying variables.

Question

Quizplus · Accepted Answer

Using first differences rather than levels of the variables can help address the issue of correlated error terms by removing the component of the error that is constant over time, thus potentially reducing autocorrelation.

When the Error Terms Are Correlated Across Observations,one Way to Address