Correcting for SC(continued) e Consider that since y,=Bo+Br,+u, then yt-I Bo+ Bx+ and subtract if from the first you get 3 o If you multiply the second equation by ◆y1-py1=(1-则B+B1x-px1D+e1 since et- pui-I ◆ This quasi-dife ferencing results in a model without serial correlation Economics 20- Prof anderson 7Economics 20 - Prof. Anderson 7 Correcting for S.C. (continued) Consider that since yt = b0 + b1 xt + ut , then yt-1 = b0 + b1 xt-1 + ut-1 If you multiply the second equation by r, and subtract if from the first you get yt – r yt-1 = (1 – r)b0 + b1 (xt – r xt-1 ) + et , since et = ut – r ut-1 This quasi-differencing results in a model without serial correlation