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Suppose you are working with an econometric model and, after your first regression, you notice that the standard errors of your estimated coefficients ( s)
Suppose you are working with an econometric model and, after your first regression, you notice that the standard errors of your estimated coefficients ( s) do not look appropriate, appearing too low or too large. Based on this problem, answer the following questions:
- Give two possible violations of the Classical Assumptions that may have originated such a problem.
- Select one of your answers from (a) and explain the possible origin(s) of such a problem. Feel free to use equations and/or other mathematical expressions to help in your answer.
- Given that the regression returned either too low or too large standard errors, what is the main consequence associated with this fact to your overall results?
- What test(s) can you conduct to confirm/deny your suspicion? If you select statistical tests, make sure to indicate null and alternative hypotheses.
- In case a violation is confirmed, what are possible remedies to solve this problem? Explain
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