Consider the following regression model: y_i = ₀ + ₁x_i + u_i. If the first four Gauss-Markov assumptions hold true, and the error term contains heteroskedasticity, then _____. A)Var(u_i|x_i) = 0 B)Var(u_i|x_i) = 1 C) Var(u_i|x_i) = i² D) Var(u_i|x_i) =

Question

Quizplus · Accepted Answer

When heteroskedasticity is present, the error term is not homoscedastic, and its variance changes with the value of the independent variable. Therefore, variances are different for different values of x. The best option for the variance of the error term is to use the White's Heteroscedasticity Consistent Standard Errors (HCSE) formula, which gives a consistent estimator for the variance of the error term, taking into account heteroscedasticity. The formula for Var(u_i|x_i) under heteroscedasticity with the first four Gauss-Markov assumptions is: Var(u_i|x_i) = 11eab06d_24ec_6f32_beed_7f44dc539352_TB2133_11 i² Therefore, the correct answer is C. If the first four Gauss-Markov assumptions hold and the error term contains heteroskedasticity, then Var(u_i|x_i) = 11eab06d_24ec_bd54_beed_891cfddce5e6_TB2133_11 _i².

Consider the Following Regression Model: Yi = 0

Consider the Following Regression Model: Y_i = ₀