24_HS_handout - Heteroskedasticity 73-261 Econometrics...

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Unformatted text preview: Heteroskedasticity 73-261 Econometrics October 25 Reading: Wooldridge 8 p. 2 © CMU / Y. Kryukov 73-261 2.4 Heteroskedasticity Announcements ¡ HW 7 due Wednesday ¡ HW 8 will be posted shortly ¡ Next week: midterm ¢ Monday: review ¢ Wednesday: exam ¡ Closed book, closed note, one two-sided formula sheet ¡ Makeup requests should be made this week p. 3 © CMU / Y. Kryukov 73-261 2.4 Heteroskedasticity Overview ¡ Topic 2: Problems and Fixes ¡ Problem: Heteroskedasticity ¢ Assumption 5 broken: V[ u | x ] ≠ σ 2 ¢ Variance of error term is not constant ¡ Consequence: tests ( t , F ) not valid ¡ Detecting it: Breusch-Pagan & White tests ¡ Fixes: ¢ H/S-consistent errors, LM test ¢ Weighted least squares p. 4 © CMU / Y. Kryukov 73-261 2.4 Heteroskedasticity Heteroskedasticity (H/S) ¡ Violation of Assumption 5 ¢ V[ u | x ] . . . ¢ V[ U i | X i ] = σ i 2 ¢ E.g. variance of savings increases with income ¡ Consequences ¢ s.e. ’s are . . ....
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This note was uploaded on 01/21/2011 for the course ECON 73-261 taught by Professor Kyrkv during the Fall '09 term at Carnegie Mellon.

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24_HS_handout - Heteroskedasticity 73-261 Econometrics...

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