The first step in the first iteration of the Cochrane-Orcutt method for AR(1)is to estimate the model and determine
A)the current period residuals.
B)the residuals lagged one period.
C)the current period residuals and the residuals lagged one period.
D)the current period residuals,the residuals lagged one period,and the residuals lagged two periods.

Question

Quizplus · Accepted Answer

In the first iteration of the Cochrane-Orcutt method for AR(1), the model is estimated and the residuals for the current period and the residuals lagged one period are determined. This is because the AR(1) model only includes one lagged term. Therefore, including the residuals lagged two periods would be unnecessary for this specific model.

The First Step in the First Iteration of the Cochrane-Orcutt