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PS 233

2. The Problem of Heteroskedasticity. Heteroskedasticity is one of two possible violations of our assumption E(ee')=s2InSpecifically, it is a violation of the assumption of constant error varianceIf errors are heteroskedastic, then coefficients are unbiased, but standard errors and t-tests are wr

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PS 233

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    1. 1 PS 233 Intermediate Statistical Methods Lecture 15 Diagnosing and Resolving Heteroskedasticity

    2. 2 The Problem of Heteroskedasticity Heteroskedasticity is one of two possible violations of our assumption E(ee’)=s2In Specifically, it is a violation of the assumption of constant error variance If errors are heteroskedastic, then coefficients are unbiased, but standard errors and t-tests are wrong.

    3. 3 How Do We Diagnose Heteroskedasticity? There are numerous possible tests for heteroskedasticity All of them consist of taking residuals from our equation and looking for patterns in variances Thus no single test is definitive, since we can’t look everywhere

    4. 4 Heteroskedasticity Tests Informal Methods Graph the data and look for patterns! A set of residuals like this should raise concern

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