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Testing under a special form of heteroscedasticity

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  • Helmut Farbmacher
  • Heinrich Kögel

Abstract

In the presence of heteroscedasticity, conventional standard errors (which assume homoscedasticity) can be biased up or down. The most common form of heteroscedasticity leads to conventional standard errors that are too small. In this study, we discuss the conditions under which conventional standard errors are too large. In such settings, standard tests of heteroscedasticity may fail and leave the heteroscedasticity undetected. This is particularly problematic as power gains can be achieved when testing for the causal effect in such settings.

Suggested Citation

  • Helmut Farbmacher & Heinrich Kögel, 2017. "Testing under a special form of heteroscedasticity," Applied Economics Letters, Taylor & Francis Journals, vol. 24(4), pages 264-268, February.
  • Handle: RePEc:taf:apeclt:v:24:y:2017:i:4:p:264-268
    DOI: 10.1080/13504851.2016.1181827
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    Cited by:

    1. Tomasz Chrulski & Mariusz Łaciak, 2021. "Analysis of Natural Gas Consumption Interdependence for Polish Industrial Consumers on the Basis of an Econometric Model," Energies, MDPI, vol. 14(22), pages 1-26, November.

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