Select Page

# Estimating ρ: The Cochrane–Orcutt (C–O) iterative procedure….

Estimating ρ: The Cochrane–Orcutt (C–O) iterative procedure. As an illustration of this procedure, consider the two-variable model: Y = β + β X + u …………………….. (1) and the AR(1) scheme u = ρu −1 + ε , −1 < ρ < 1 ……………. (2) Cochrane and Orcutt then recommend the following steps to estimate ρ. 1. Estimate Eq. (1) by the usual OLS routine and obtain the residuals, û . Incidentally, note that you can have more than one X variable in the model. 2 Using the residuals obtained in step 1, run the following regression: t = ρ̂û + v ………………………….. (3) which is the empirical counterpart of Eq. (2). 3. Using ρˆ obtained in Eq. (3), estimate the generalized difference equation (12.9.6). 4. Since a priori it is not known if the ρˆ obtained from Eq. (3) is the best estimate of ρ, substitute the values of ˆ β∗1 and ˆ β∗2 obtained in step (3) in the original regression Eq. (1) and obtain the new residuals, say, û as û = Y – β̂ – β̂ X (4) which can be easily computed since Y , X , β̂ , and β̂ are all known. 5. Now estimate the following regression: û = ρ̂ û + w ………………………. (5) which is similar to Eq. (3) and thus provides the second-round estimate of ρ. Since we do not know whether this second-round estimate of ρ is the best estimate of the true ρ, we go into the third-round estimate, and so on. That is why the C–O procedure is called an iterative procedure. But how long should we go on this (merry-) go-round? The general recommendation is to stop carrying out iterations when the successive estimates of ρ differ by a small amount, say, by less than 0.01 or 0.005. In our wages–productivity example, it took about three iterations before we stopped. a. Use the Cochrane–Orcutt iterative procedure to estimate ρ for the wages– productivity regression, Eq. (12.5.2). How many iterations were involved before you obtained the “final” estimate of ρ? b. Using the final estimate of ρ obtained in (a), estimate the wages–productivity regression, dropping the first observation as well as retaining the first observation. What difference you see in the results? c. Do you think that it is important to keep the first observation in transforming the data to solve the autocorrelation problem?

Give us your instructions.
Select the type of service you need: writing, calculations, or programming. We’ve created an intuitive order form that tells you what information to enter and where, so make sure to fill out each required field. Also, make your requirements as specific as possible. Don’t rush! Take your time and explain everything in detail how it works.

Proceed to checkout and enter your credit card details or PayPal login, how to pay. Follow the payment provider’s instructions to confirm the transaction.
Now your order is in our system! We’ll start processing it right away.

## Contact Us

##### Is your service confidential?

When you place an order with our company, we ask you to provide us with such personal information as your name, phone number, and email address. We need this data to keep you updated on the important things related to your order or account.

##### Is there a possibility of plagiarism in my completed order?

We complete each paper from scratch and in order to make you feel safe regarding its authenticity, we check it for plagiarism before its delivery. To do that, we use our in-house software, which can find not only copy-pasted fragments but even paraphrased pieces of text. Unlike popular plagiarism detection systems that are used by most universities (e.g. Turnitin.com), we do not report to any public databases—therefore, such checking is safe.

We provide a plagiarism-free guarantee that ensures your paper is always checked for its uniqueness.

##### Is there a money-back guarantee? If yes, how can I receive a refund?

You can certainly get your money back in several cases. You can receive a full refund if you have paid for your order twice or if you have placed two identical orders. In case your paper was late or the quality of the paper does not correspond to your expectations, you will get compensation for these issues.

##### Do you keep a database of pre-written essays?

No, we do not have such a database. All papers you order from us are written from scratch. This means your paper is unique and has never been published before—neither will it be published after we deliver it to you.

##### When will my custom paper be done?

While placing an order with WritersHub, you can choose a period of time within which a paper should be delivered to you. The countdown until the specified deadline starts automatically from the moment we receive your payment in our system. For example, if you pay for your order at 6pm on Monday and choose a 3-day delivery option, you will receive your custom paper by 6pm on Thursday.

Remember that a writer needs a sufficient amount of time in order to conduct thorough research. Therefore, please choose the most suitable deadline when you place an order. Moreover, the later you need your paper to be delivered to you, the cheaper it will be. Thus, you will be able to save your money while your writer will have enough time to work on your order and ensure its quality.

Make sure you upload all the additional materials at the very beginning. If you fail to do that, the deadline for your order will be postponed as well.

##### I haven’t received my custom paper by the deadline. What should I do?

Let us know immediately about that. You can do it by writing a message on Facebook or email us. Our support manager will carefully examine your order and will assist you with it right away. The reasons for late delivery may vary from time to time. It can happen that you have entered a wrong email address or your spam filter does not allow you to receive emails from us. It is also possible that the writer is waiting for your reply and can not continue working without your assistance, or we are checking the work for plagiarism. Whatever the case may be, contact us if you have any problems with getting your order on time.