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Gujarati(2003): Chapter11
er
tu
ndi
pe
ex
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Var(ui) = E(ui2)= 2
Y
i
r e
itu
n d
p e
x
e
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Var(ui) = E(ui2)= i2
Two-variable regression: Y = 1 + 2 X + ui
xy
^
2 = 2
= ki Y = ki (1 + 2 X + ui) k =0i
x =1
k X i i
^ = + k u
=> 2 2 i iE(^) = unbiased 2 2
=> not the best => not efficiency => not BLUE
xii2 2
3. Var ( ^2) = ^ Two-variable
instead of Var( 2) =
2
(xi ) 2 x2 case
^ u
^2
4. 2 = ^ 2 ) 2
i
n-k is biased, E(
u^ 2
Yes,
heteroscedasticity exists
^
Y
M. Balclar, EMU, ECON 503
10.9
Detection of heteroscedasticity: Graphical method
u^2 u^2 yes u^2 yes
no heteroscedasticity
^
Y ^
Y ^
Y
yes yes yes
u^2 u^2 u^2
^
Y ^ ^
Y Y
M. Balclar, EMU, ECON 503
Statistical test: (i) Park test 10.10
Step 1
Ln( ^u 2 ) = 1* + 2* ln Xi + vi
df = n-2
Use t-test to test:
H0 : rs = 0 (Homoscedasticity)
df = n-2
RSS 2 / df 2
= > Fc ?
M. Balclar, EMU, ECON 503 RSS1 / df1
(v) BreuschPaganGodfrey Test 10.19
W=
2(0.05, 6) = 12.59
W> reject Ho
2(0.10, 6) = 10.64
2(0.05, 6) = 12.59
W< not reject Ho
2(0.10, 6) = 10.64
H0 : homoscedasticity Var ( ui ) = 2
H1 : heteroscedasticity Var ( ui ) = i2
Test procedures:
(1) Run OLS on regression: Yi = 1 + 2X2i + 3X3i + ui ,
obtain the residuals, ^
ui
(2) Run the auxiliary regression:
^ui2 = 1 + 2 X2i + 3 X3i + 4 X22i + 5 X23i + 6 X2i X3i + vi
~ 2df
(3) Compute W (or LM) = nR2 asy
W=
2(0.05, 9) = 16.92
W> reject Ho
(0.10, 9) = 14.68
2
2(0.05, 9) = 16.92
W< not reject Ho
2(0.10, 9) = 14.68
ui 2 1 1
(ii) E ( Z ) = Z 2E (ui ) = Z 2 Zi22 = 2
2
i i i
ui uj 1
(iii) E ( )= E ( ui uj ) = 0
Zi Zj ZiZj
+
0 X3
-
X3
This plot suggests a variance is increasing proportional to X3i2.
The scattered plots spreading out as nonlinear trumpet pattern.
Therefore, we might expect 2 = Z 22
i iZ 2 = X 2 =>Z =X
i 3i i 3i
Hence, the transformed equation becomes
Yi 1 X2i X3i ui
= 1 + 2 + 3 +
X3i X3i X3i X3i X3i
This becomes
=> Yi* = 1 X1* + 2 X2* + 3 + u* the intercept
Where u*i satisfies the assumptions of classical OLS coefficient
M. Balclar, EMU, ECON 503
Example: Studenmund (2001), Eq. 10.27, pp.373 10.33
2(0.05, 6) = 12.59
W< not reject Ho
2(0.10, 6) = 10.64
+
0 X3
-
X3
This plot suggests a variance is increasing proportional to X3i.
The scattered plots spreading out as a linear cone pattern
Therefore, we might expect i2 = Zi2 hi2 = X3i => hi = X3i
The transformed equation is
Yi 1 X2i X3i ui
= 1 + 2 + 3 +
X3i X3i X3i X3i X3i
^
1. Yi 1
( ) = -246.67 + 0.0367 Xi
Xi Xi
(-0.64) (5.17) C.V. = 0.8195
=>(1) ^
R&D = -246.67 + 0.036 Sales SEE = 7.25
i
(-0.64) (5.17) R2 = 0.3648
^
Yi 1
= 1 +2 Xi
Xi Xi
C.V. = 0.8195
M. Balclar, EMU, ECON 503
10.44
After transformation by @sqrt(x), residuals still spread out wider
^
Yi 1
= 1 + 2
Xi Xi
C.V. = 0.7467
M. Balclar, EMU, ECON 503
10.46
After transformation by Xi, residuals spread out more stable
50000
40000
PERGDP
30000
20000
10000
0
1 2 3 4 5 6 7 8 9 10
CO RRUPT ION
M. Balclar, EMU, ECON 503
10.48