The Prais-Winsten procedure for AR(1)improves on the Cochrane-Orcutt method for AR(1)by
A)incorporating estimates of the first observation only in the first iteration.
B)incorporating estimates of the first observation in all iterations.
C)generating an estimate of $\hat { \rho }$ that actually equals ρ.
D)reducing the required number of iterations.

Question

Quizplus · Accepted Answer

The Prais-Winsten procedure for AR(1) incorporates estimates of the first observation in all iterations, unlike the Cochrane-Orcutt method which only uses estimates of the first observation in the first iteration. This leads to more accurate parameter estimates and reduces the bias in the estimation of the autoregressive parameter. The procedure does not generate an estimate of $\hat { \rho }$ that actually equals ρ and does not necessarily reduce the required number of iterations. Therefore, option B is the correct answer.

The Prais-Winsten Procedure for AR(1)improves on the Cochrane-Orcutt Method for AR(1)by