Autocorrelation (also called serial correlation) is violation of the assumption that the error terms are
not correlated, i.e., with autocorrelation E(∈i, ∈j) ≠ 0 (∈i ≠ ∈j). That is, the error in the period t is not
independent of previous errors.
Since we do not know the population line, we do not know the actual errors (∈s), but we estimate
them by the residuals (e). Hence a look at the residual plot for a regression that (i) has no
autocorrelation; (ii) has positive autocorrelation, and, (iii) has negative autocorrelation. The positive
autocorrelation is the common problem in economics. ...