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Select the most appropriate response. The Breusch-Godfrey test rejects the null. A. Heteroskedasticity correction is needed....

Select the most appropriate response. The Breusch-Godfrey test rejects the null.

  • A. Heteroskedasticity correction is needed.

  • B. OLS estimates are biased.

  • C. Standard errors are not valid.

  • D. 2SLS is needed to correct the estimates and standard errors.

math   Statistics-And-Probability   
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Answer #1

We know that,

The basis of the Breusch–Pagan test. It is a chi-squared test: the test statistic is distributed nχ2 with k degrees of freedom. If the test statistic has a p-value below an appropriate threshold (e.g. p < 0.05) then the null hypothesis of homoskedasticity is rejected and heteroskedasticity assumed.

Hence, Heteroskedasticity correction is needed.

i.e., Option A. is correct.

Thank you.

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