First-order autoregressive error model

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Refer to first-order autoregressive error model (12.1). Suppose Y_tis company's percent share of the market, XI is company's selling price as a percent of average competitive selling price

a. Plot the true regression line. Generate the observations' Y_t (t = 1, ... , 10), and plot these on the same graph. Fit a least squares regression line to the generated observations Y_t and plot it also on the same graph. How does your fitted regression line relate to the true line?

b. Repeat the steps in part (a) but this time let ρ = O. In which of the two cases does the fitted regression line come closer to the true line? Is this the expected outcome?

Reference no: EM131093751

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