Cochrane–Orcutt estimation

Cochrane–Orcutt estimation is a procedure in econometrics, which adjusts a linear model for serial correlation in the error term. It is named after statisticians Donald Cochrane and Guy Orcutt.

Consider the model

where ${\displaystyle y_{t}}$ is the value of the dependent variable of interest at time t, ${\displaystyle \beta }$ is a column vector of coefficients to be estimated, ${\displaystyle X_{t}}$ is a row vector of explanatory variables at time t, and ${\displaystyle \varepsilon _{t}}$ is the error term at time t.

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