1.3) The following is a regression equation for the ADF test. AY, = a +Bt+yY,-1+1AY,-; +€, ΣΑΔΥ, j=1 It is important to

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1.3) The following is a regression equation for the ADF test. AY, = a +Bt+yY,-1+1AY,-; +€, ΣΑΔΥ, j=1 It is important to

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Question from Applied Econometrics
please answer both options carefully (carries 10 Marks)
1.3) The following is a regression equation for the ADF test. AY, = a +Bt+yY,-1+1AY,-; +€, ΣΑΔΥ, j=1 It is important to carefully determine the lag order. (a) If a too small lag order is selected, what problem will there be? (b) If a too large lag order is selected, what problem will there be?
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