Question: Violation of OLS conditions, time-series.

A. What the consequences of first order autocorrelation or errors (serial correlation) in the regression model?

B. A printout is supplied of a fit of the number of life insurance policies in force on the lives of U.S. residents for the years 1980 through 2006 using the model E(Y) = B0 + B1 YEAR. Examine the results presented here.

Is there evidence of autocorrelation of error terms present in these results? Summarize this evidence and be sure to test an appropriate hypothesis for autocorrelation of errors.

C. Describe a correction procedure for the above problem if the first-order autocorrelation coefficient is known to be 0.75.