INTRODUCTION TO ECONOMETRICS II ECO 306 NOUN 109 Note that there should not be a constant term in the equation. By regressing Y' on hand X', you will obtain efficient estimates of and with unbiased standard errors. 3.1.3.7 Consequences of Heteroscedasticity The seriousness of the consequences of heteroscedasticity will depend on the nature of the occurred heteroscedasticity, and there are no general rules. In the case of the heteroscedasticity, where the standard deviation of the disturbance term is proportional to Xand the values of Xare integers from 5 to 44. Here, the population variance of the OLS estimator of the slope coefficient is approximately double that of the estimator, where the heteroscedasticity has been eliminated by dividing through byX. Further, the standard errors of the OLS estimators are underestimated, giving a misleading impression of the precision of the OLS coefficients. 3.1.4.0 SUMMARY This unit begins with a general discussion ofheteroscedasticity and its meaning. Also discussed are the reasons why the distribution of a disturbance term maybe subject to heteroscedasticity, and the consequences of the heteroscedasticityproblem for OLS estimators. We continued with presentation of several tests for heteroscedasticity and methods of alleviating the problem. 3.1.5.0 CONCLUSION The discussion in this unit concludes with an awareness to the students that the concept of heteroscedasticity and associated problems are indications of how an apparent case of heteroscedasticity maybe caused by model misspecification. 3.1.6.0 TUTOR-MARKED ASSIGNMENT A researcher investigating whether government expenditure tends to crowd out investment fits the regression (standard errors in parentheses ̂ SEE. (7.79) (0.14) (0.02)
