Suppose we observe a plot of residuals squared on the y axis and values of x on
ID: 3336557 • Letter: S
Question
Suppose we observe a plot of residuals squared on the y axis and values of x on the horizontal axis. We then run a regression on this data (ie we run the model e Bo B1 Xi) Suppose the estimated value for Bis 50 with a standard error of 2. Conducting a t test against the null of 3. 0 would give a t-score of 25, which is significant at any reasonable level. a. What does this test tell us? b. What does this mean about the estimates of the original model (the regression of y on x?) Are the estimates unbiased? Are the estimated efficient? How would you correct this problem? c.Explanation / Answer
a. Since the t-score of 25 is significant, we can say that the residuals are hetroskedastic.
b. This means that the residuals of the original model might are not constant. Hence it would not be correct to say the the estimates are unbiased or efficient.
c. One of the few possible ways to correct the problem is using the logarithmic values.