If X_it is correlated with X_is for different values of s and t, then A)X_it is said to be autocorrelated B)the OLS estimator cannot be computed C)statistical inference cannot proceed in a standard way even if clustered standard errors are used D)this is not of practical importance since these correlations are typically weak in applications

Question

Quizplus · Accepted Answer

If X_it is correlated with X_is for different values of s and t, it means that the variable is correlated with its own lagged value. This is known as autocorrelation. Autocorrelation can cause biased and inefficient estimates and can lead to incorrect statistical inference. Therefore, it is important to account for autocorrelation in the analysis.

If Xit Is Correlated with Xis for Different Values of S

If X_it Is Correlated with X_is for Different Values of S