Question

a) What is meant by the term auto-correlation?

b) What is meant by the term heteroskedasticity?

Answer 1

In simple language , auto corelation is the relation between 2 error terms, of different times.

No auto corealtion means that covariance between them is 0. The variable that were a part of error term at time i are not the part of error term at time j.

it is the similarity between observations as a function of the time lag between them.

Heteroscedasticity means that the variance of our error term is not constant. It means that as X changes the variance of our error term u also increases or decreases. As we see in figure, as X increases the noise term is also increasing with it. The distance is not constant

Auto corelation Cor (ui, uj) of o No auto corelation lor lui, uj) = 0. Miten Ace desticity