a. Explain what is meant by the ‘inconclusive region’ of the Durbin-Watson test.
b. Explain why autocorrelation may arise as the result of an incorrect functional form. c. Explain why autocorrelation may arise because of an omitted variable. d. Explain why adding a lagged dependent variable and lagged explanatory variables to the model may eliminate the problem of first-order autocorrelation. Give at least two reasons why this is not necessarily a preferred solution. e. Give an example where first-order autocorrelation leads to an inconsistent GLS estimator. f. Explain why you would use Newey-West standard errors. g. Describe in steps how you would compute the Feasible GLS estimator for β in the standard model with (second-order) autocorrelation of the form ε t= ρ1 ε t−1 + ρ1 ε t−1 +ϑ t−1 (Do not worry about the initial observation(s))