Korean System Dynamics Review (한국시스템다이내믹스연구)
- Volume 8 Issue 2
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- Pages.25-49
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- 2007
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- 1229-8085(pISSN)
The Regional Homogeneity in the Presence of Heteroskedasticity
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Chung, Kyoun-Sup
(Pukyong National University) ;
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Lee, Sang-Yup
(Hanseo University)
- Published : 2007.11.30
Abstract
An important assumption of the classical linear regression model is that the disturbances appearing in the population regression function are homoskedastic; that is, they all have the same variance. If we persist in using the usual testing procedures despite heteroskedasticity, what ever conclusions we draw or inferences we make be very misleading. The contribution of this paper will be to the concrete procedure of the proper estimation when the heteroskedasticity does exist in the data, because the quality of dependent variable predictions, i.e., the estimated variance of the dependent variable, can be improved by giving consideration to the issues of regional homogeneity and/or heteroskedasticity across the research area. With respect to estimation, specific attention should be paid to the selection of the appropriate strategy in terms of the auxiliary regression model. The paper shows that by testing for heteroskedasticity, and by using robust methods in the presence of with and without heteroskedasticity, more efficient statistical inferences are provided.