A linear regression model is estimated using OLS, but the variance of the error term is not constant and in fact varies directly with another variable which is not included in the model. Which of the following statements is true?
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A linear regression model y=α+β x+ε is estimated using OLS, but the variance of the error term is not constant and in fact varies directly with another variable z which is not included in the model. Which of the following statements is true? (A) The OLS estimated coefficients will be biased because of the correlation between x and the error term (B) The OLS estimated coefficients will be unbiased but their estimated standard errors will be biased (C) The OLS coefficients and their standard errors will be unbiased because the error variance is not related to x but to z (D) Both the OLS estimated coefficients and their estimated standard errors will be biased
Also written as: A linear regression model y=alpha+beta x+epsilon is estimated using OLS, but the variance of the error term is not constant and in fact varies directly with another variable z which is not included in the model. Which of the following statements is true?
Classical assumptions and their violations has come up 26 times in 7 exams since 2011.
This question is on Heteroscedasticity, part of Classical assumptions and their violations in Econometrics.
Unequal error variance: causes, consequences for OLS, tests and remedies.
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Question from the DSE 2013 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.