Econometrica: Mar, 1972, Volume 40, Issue 2

Asymptotic Covariance Matrix of Procedures for Linear Regression in the Presence of First-Order Autoregressive Disturbances

https://doi.org/0012-9682(197203)40:2<305:ACMOPF>2.0.CO;2-E
p. 305-310

J. Phillip Cooper

The methods of Cochrane and Orcutt orr Hildreth and Lu to correct linear regressions for first-order autoregression in the disturbances, as usually implemented, underestimate the standard errors of the regression coefficients whenever a lagged dependent variable is included. A convenient transformation is derived from the information matrix to remove this bias. The asymptotic standard error of the estimated serial coefficient is a useful coproduct of the analysis.