(a) Suppose you are an economist and have been asked to determine the direct relationship between...

 

Transcribed Image Text:

(a) Suppose you are an economist and have been asked to determine the direct relationship between countries' GDP and investment expenditures using a cross section of macroeconomic level data. Why might this data exhibit heteroscedasticity? (b) Suppose you estimate the following regression yt=80+81x1,t+62x2,t+33x3,t+ut Explain how White's general test for heteroscedasticity is performed using the residuals from this regression. Pay attention to how the test is constructed, the null and alternative hypothesis and how critical values for the test are obtained. (c) Suppose you know that V(ut)= ot2zt2 where zt is a variable not used in your initial regression. How would you transform the regression in part (b) to eliminate this particular form of heteroskedasticity? (a) Suppose you are an economist and have been asked to determine the direct relationship between countries' GDP and investment expenditures using a cross section of macroeconomic level data. Why might this data exhibit heteroscedasticity? (b) Suppose you estimate the following regression yt=80+81x1,t+62x2,t+33x3,t+ut Explain how White's general test for heteroscedasticity is performed using the residuals from this regression. Pay attention to how the test is constructed, the null and alternative hypothesis and how critical values for the test are obtained. (c) Suppose you know that V(ut)= ot2zt2 where zt is a variable not used in your initial regression. How would you transform the regression in part (b) to eliminate this particular form of heteroskedasticity?

Answer rating: 100% (QA)

a There are many factors that can affect a countrys GDP and investment expenditures is just one of them Other factors could include population size na... View the full answer