LEVEL 06 · 80 MIN
The Time Loop
Break the residual time loop.
Past shocks are leaking into the present. Trace the residual echoes, choose a valid test for the model, and repair the time-series system without mistaking a covariance correction for a complete dynamic specification.
MISSION OBJECTIVES
- Define first- and higher-order serial correlation.
- Identify economic and specification sources of residual dependence.
- Explain consequences for OLS efficiency, inference, and dynamic models.
- Use residual plots, correlograms, Durbin–Watson, and Breusch–Godfrey appropriately.
- Choose among dynamic respecification, HAC inference, and AR-based FGLS.