Question
(a)State in algebraic notation and explain the assumption about the classical linear regression models disturbances that are referred to by the term homoscedasticity. (b) What
(a)State in algebraic notation and explain the assumption about the classical linear regression models disturbances that are referred to by the term homoscedasticity.
(b) What would the consequence be for a regression model if the errors were not homoscedastic?
(c) How might you proceed if you found that (b) were actually the case?
(d) What do you understand by the term autocorrelation?
(e) An econometrician suspects that the residuals of her model might be autocorrelated. Explain the steps involved in testing this theory using the DurbinWatson (DW) test.
(f) The econometrician follows your guidance in part (b) and calculates a value for the Durbin Watson statistic of 0.95. The regression has 60 quarterly observations and three explanatory variables (plus a constant term). Perform the test. What is your conclusion?
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