Hildreth–Lu estimation explained

Hildreth–Lu estimation, named for Clifford Hildreth and John Y. Lu,^[1] is a method for adjusting a linear model in response to the presence of serial correlation in the error term. It is an iterative procedure related to the Cochrane–Orcutt estimation.

The idea is to repeatedly apply ordinary least squares to

y _{t} - \rho y _{t-1} = \alpha( 1- \rho) + (X _{t} - \rho X _{t-1} )\beta + e _{t} for different values of \rho between −1 and 1. From all these auxiliary regressions, one selects the pair (α, β) that yields the smallest residual sum of squares.

See also

• Prais–Winsten estimation

Further reading

• Book: Davidson, Russell . MacKinnon . James G. . James G. MacKinnon . Estimation and Inference in Econometrics . New York . Oxford University Press . 1993 . 0-19-506011-3 . 331–341 .
• Book: Kmenta, Jan . Jan Kmenta . 298–317 . Elements of Econometrics . New York . Macmillan . 1986 . Second . 0-02-365070-2 . registration .
• Book: Maddala, G. S. . G. S. Maddala . Kajal . Lahiri . Introduction to Econometrics . Chichester . Wiley . Fourth . 2009 . 978-0-470-01512-4 . 246–250 .
• Book: Pindyck, Robert S. . Robert Pindyck . Rubinfeld . Daniel L. . Econometric Models and Economic Forecasts . Boston . McGraw-Hill . Fourth . 1998 . 0-07-118831-2 . 159–164 .

Notes and References

1. Hildreth . C. . Lu . J. Y. . Demand Relations with Autocorrelated Disturbances . Technical Bulletin . 276 . Michigan State University Agricultural Experiment Station . November 1960 .