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Unformatted text preview: the VIFs. Based on VIF values nd out which variables are most aected by multicollinearity. 3. Consider the following regression equation, Y i = + 1 X i + i (2) Now suppose, V ar ( i ) = 2 X 3 i (3) (3.a) How would you transform the model to achieve homoskedastic ( or constant) error variance? Explain. (3.b) Is the OLS estimator of the transformed regression BLUE? 4. Download RD.xls from Carmen. The le contains cross section data on Research and Development expenditure in US in 1988 for dierent industries: Sales i sales in the industry i. RDexp i R&D expenditure in industry i. Now suppose you want to estimate, RDexp i = + 1 Sales i + i (4) 4.a Estimate (4) using Eviews. Submit your output. 4.b Using Parks test, test whether there is heteroskedasticity in (4) at 5% level of signicance. Report your eviews output for this test and state clearly whether you nd heteroskedasticity in the data. 2...
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 Winter '07
 OGAKI
 Econometrics

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