a. Consider the following model
Estimate the parameters of this model and interpret the results. Do they make economic sense?
b. Would you expect the error variance in the preceding model to be heteroscedastic? Why?
c. Use the White test to find out if the error variance is heteroscedastic.
d. Obtain Whiteâ€™s heteroscedasticity-consistent standard errors and t values and compare your results with those obtained from OLS.
e. If heteroscedasticity is established, how would you transform the data so that in the transformed data the error variance is homoscedastic? Show the necessary calculations.