Essay
Assume that you had found correlation of the residuals across observations.This may happen because the regressor is ordered by size.Your regression model could therefore be specified as follows:
Yi = β0 + β1Xi + ui
ui = ρui-1 + vi; 
< 1.
Furthermore,assume that you had obtained consistent estimates for β0,β1,ρ.If asked to make a prediction for Y,given a value of X(= Xj)and 
j-1,how would you proceed? Would you use the information on the lagged residual at all? Why or why not?
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