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The University of Foxville-Mayhem economist has decided to investigate the properties of her data. After estimating the relationship between the mortgage default rate and the
The University of Foxville-Mayhem economist has decided to investigate the properties of her data. After estimating the relationship between the mortgage default rate and the share of the population with outstanding payday loans, she has obtained the error term (ehat). The economist has then calculated the variance of the error term (ehat2) and plotted this against the share of the population with outstanding payday loans. Figure 2 60 40 ehat2 20 5 15 10 20 25 Share of Population with Outstanding Payday Loans (%) Based on the evidence in Figure 2, what problem may exists in the economist's data set? Heteroskedasticity Multicollinearity Endogeneity Non-random sampling Impossible to say
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