Framework and Assumptions Example 1 [Autoregressive (AR)Model]: .Consider an AutoRegressive AR(1)model Yt Bo+B1Yi-1+Et, t=1,,n, XB+Et, {et}~IID(0,o2), where Xt =(1,Yi-1). Obviously,E(Xiet)=E(X:)E(et)=0 but E(Xt+1et)0.Thus,we have E(etX)0,and so Assumption 3.2 does not hold.Here,the lagged de- pendent variable Yi-1 in the regressor vector X:is called a predetermined variable,since it is orthogonal to st but depends on the past history of {et}. ADVANCED ECONOMETRICS Classical Linear Regression Model May11,2021 9ADVANCED ECONOMETRICS Classical Linear Regression Model May 11, 2021 9 Framework and Assumptions Example 1