Econometrics

For this exercise we use an extract of the 2003 U.S. Medical Expen- diture Survey (MEPS) provided with Cameron and Trivedi (2010). The MEPS is a large-scale survey of families and individuals, their medical providers, and employers across the United States. Consider the following model: In totexpi -a + Biage; + Bytotchri + Byincome; + 8, female; + &zsuppins; + 83phylim; + Exactlim; + Vi, i = 1,...,n (2) (a) Figure 1 depicts residuals against fitted values estimated from the model in (2). Do you see a pattern? Is the homoskedasticity assumption Var[v;|x;] = oz likely to hold? Residuals 9 10 11 Fitted values Figure 1: Plot of residuals against fitted values from the model in (2). (b) Discuss biasedness, asymptotic consistency and efficiency of OLS in the presence of heteroskedasticity