Serial correlation occurs when the error term is ________.
A) dispersed evenly
B) randomly distributed
C) correlated across observations
D) uncorrelated across observations

Question

Quizplus · Accepted Answer

Serial correlation occurs when the error term is correlated across observations, meaning that the error term in one observation can be used to predict the error term in the next observation. This violates the assumption of independence of errors in regression analysis, which can result in biased estimates of the regression coefficients and incorrect inference.

Serial Correlation Occurs When the Error Term Is ________