Lecture13 - Lecture 13 Heteroskedasticity Econ 444 Winter...

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Unformatted text preview: Lecture 13: Heteroskedasticity Econ 444, Winter 2010 March 1, 2010 3 White’s test : Consider following regression equation, Y i = β + β 1 X 1 i + β 2 X 2 i + i (1) Suppose we suspect that the error term in the above equation is heteroskedastic. White’s test can be used to test whether there is heteroskedasticity. Steps involved in White’s test : Step 1 : Estimate the original regression equation (1) using OLS and save the residuals, e i . Step 2: Use e 2 i as the dependent variable and estimate the following equation which includes as independent variables each X from the original equation, the square of each X and the product of each X with every other X in the equation. In our example, we estimate : e 2 i = α + α 1 X 1 i + α 2 X 2 i + α 3 X 2 1 i + α 4 X 2 2 i + α 5 X 1 i X 2 i + ν i (2) Step 3: Obtain the White’s test statistic : White s Statistic = N × R 2 (3) Under certain assumptions above statistic has a χ 2 distribution with J degrees of freedom ( J is the number of...
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This note was uploaded on 04/13/2010 for the course ECON 444 taught by Professor Ogaki during the Winter '07 term at Ohio State.

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Lecture13 - Lecture 13 Heteroskedasticity Econ 444 Winter...

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