(i) Explain what is meant by hetroscedasticity in a regression model Y = Xβ + ε...

(i) Explain what is meant by hetroscedasticity in a regression model Y = Xβ + ε
and why it causes a problem with inference in OLS. Use a practical example to illustrate.

(ii) How can you check for heteroscedasticity in practice?

(iii) Explain how ‘Weighted Least Squares’ corrects for heteroscedasticity.

Expert Solution

orchestra answered 1 year ago

Consider the regression model: y = Xβ + u

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Question

(i) Explain what is meant by hetroscedasticity in a regression model Y = Xβ + ε...

Solutions

Expert Solution

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