Abstract
This paper analyses the effect of measurement errors in the linear regression model with auto-correlated errors using a Lagrange Multiplier (LM) test. The asymptotic distribution of test statistic is shown to be standard normal under the null hypothesis. Finite sample properties of the test are examined briefly by simulations. It is found that the power of the test depends on the variance of the measurement error as well as the autoregressive parameter of the model.
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