Feasible Generalized Least Squares

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August 31, 2024 4 min read Definitions

Cochrane-Orcutt Procedure: Addressing Serial Correlation in Regression Models

Mathematics Statistics Cochrane-Orcutt Serial Correlation Linear Regression Econometrics Feasible Generalized Least Squares

The Cochrane-Orcutt procedure is a two-step estimation technique designed to handle first-order serial correlation in the errors of a linear regression model. This method uses the ordinary least squares residuals to estimate the first-order autocorrelation coefficient and then rescale the variables to eliminate serial correlation in the errors.