HORI ANSWERS Consider the linear regression function AHE = Bo + BiCollege + B2Female + B3 Age + B4Expr + B5NE + B6MW + B+S+ BOR+U, where AHE: indicates the average hourly earning College: is a dummy variable indicating whether the individual has completed college - Female: is a dummy variable indicating whether the individual is a female or not Age: indicates the age Expr: indicates the years of work experience - NE: is a dummy variable indicating whether the individual comes from the Northeast MW: is a dummy variable indicating whether the individual comes from the Midwest - S: is a dummy variable indicating whether the individual comes from the South - OR: is a dummy variable indicating whether the individual comes from other regions (other than NE, MW or S) (1) There exists a problem in the above linear regression function, due to which the OLS estimators are not computed. State what the problem is and write down a modified version of the regression function to solve the problem. (2) Based on the modified version of the regression function from (1), perform White test to check whether there exists significant heteroskedasticity at the 5% significance level. Clearly write out your test procedure. HORI ANSWERS Consider the linear regression function AHE = Bo + BiCollege + B2Female + B3 Age + B4Expr + B5NE + B6MW + B+S+ BOR+U, where AHE: indicates the average hourly earning College: is a dummy variable indicating whether the individual has completed college - Female: is a dummy variable indicating whether the individual is a female or not Age: indicates the age Expr: indicates the years of work experience - NE: is a dummy variable indicating whether the individual comes from the Northeast MW: is a dummy variable indicating whether the individual comes from the Midwest - S: is a dummy variable indicating whether the individual comes from the South - OR: is a dummy variable indicating whether the individual comes from other regions (other than NE, MW or S) (1) There exists a problem in the above linear regression function, due to which the OLS estimators are not computed. State what the problem is and write down a modified version of the regression function to solve the problem. (2) Based on the modified version of the regression function from (1), perform White test to check whether there exists significant heteroskedasticity at the 5% significance level. Clearly write out your test procedure