Can someone explain what it means when we say ‘the residuals are correlated’. I know what it means to be correlated, but what do they mean by saying the residuals are correlated?
Are you talking about autocorrelation? If simply means the value of one residual is predictive of the value of next residual. In the case of positive autocorrelation, positive residuals tend to be followed by positive residuals and negative residuals tend to be followed by negative residuals (as opposed to be be ramdon normally distributed along the regression line) It is a big problem and a violation of one of OLS assumptions.
sweet, thanks