Could someone please explain me the issue
The 4th regression model misspecification tells us about including lagged dependent variables as independent variables in regressions with serially correlated errors.
Then the curriculum writes:
Because we assume that the error is serially correlated, by definition the error term is correlated with the dependent variable. Consequently the lagged dependent variable Tt-1 will be correlated with the error term.
For me it is not so obvious why if the error terms are serially correlated they are correlated with the dependent variable. And why, consequently that lagged dependent variable will be correlated with the error as well.
Thanks guys