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Unformatted text preview: Professor Mumford Econ 360 - Fall 2010 [email protected] Problem Set 8 Due at the beginning of class on Tuesday, November 2 True/False (18 points) Please write the entire word. No explanations are required. 1. Heteroskedasticity causes the OLS estimator to be inconsistent. 2. Heteroskedasticity causes the OLS estimator to be biased. 3. Heteroskedasticity causes the usual estimator of the variance of the OLS estimator to be biased. 4. Heteroskedasticity causes R 2 and ¯ R 2 to be inconsistent estimators of the population R-squared. 5. Heteroskedasticity-robust standard errors are valid only if the sample size is large. 6. Heteroskedasticity-robust standard errors are not valid if the error term is homoskedas- tic, even with a large sample size. 7. Heteroskedasticity-robust standard errors enable computing t statistics that are asymp- totically t distributed whether or not heteroskedasticity is present. 8. Heteroskedasticity-robust standard errors are always larger than the usual standard errors. 9. If heteroskedasticity is present, OLS is not the best linear unbiased estimator. 1 Long Answer Questions (82 points) 10. (10 points) Consider a model relating the price of a new car to 3 of its characteristics price = β + β 1 mpg + β 2 weight + β 3 leather + u (a) How does one perform the Breusch-Pagan Test for heteroskedasticity? Describe the steps and how one would interpret the results. (b) How does one perform the special case of the White test? Describe the steps and how one would interpret the results....
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This note was uploaded on 02/06/2012 for the course ECON 360 taught by Professor Na during the Spring '10 term at Purdue.
- Spring '10