Time Series Regression Modeling with AR(1) Errors
Babagana Modu, Abdullahi Mohammed Inuwa · European Journal of Statistics · 2023
When ordinary regression analysis is performed using time-series variables, it is common for the errors (residuals) to have a time-series structure. This violates the usual assumption of independent errors in ordinary least squares (OLS) regressions. Consequently, the estimates of the coefficients and their standard errors are incorrect if the time-series structure of the errors is ignored. In this study, an investigation of a regression model with time-series variables, particularly a simple case, was conducted using the conventional method. The ‘AirPassengers Dataset’ was downloaded from the R repository used for the analysis. Ordinary least squares and Cochrane-Orcutt procedures were used as methodologies. The results show that the adjusted regression model with autoregressive errors outperformed the ordinary regression model.