Heteroskedasticity & Serial Correlation Flashcards
1
Q
What is heteroskedasticity?
A
When the variance of the error term is not constant across observations.
2
Q
What is the Breusch-Pagan test used for?
A
Testing for heteroskedasticity by regressing squared residuals on the regressors.
3
Q
What is the null hypothesis in the Breusch-Pagan test?
A
The error variance is constant (homoskedasticity).
4
Q
What is serial correlation?
A
When the error terms are correlated across time.
5
Q
What test do we use to detect serial correlation?
A
The Breusch-Godfrey (BG) test.
6
Q
How do we fix heteroskedasticity or serial correlation?
A
Use robust standard errors, GLS, or Newey-West standard errors.
7
Q
Why is heteroskedasticity a problem in regression?
A
It makes standard errors invalid, which affects the reliability of t- and F-tests.
