- #1
Rabolisk
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Hey. Iam trying to understand how specification of the equation can lead to hetroscedasticity. This is stright out of my notes.
Yt=B1+B2x2t+B3x3t+...+BkXkt+[itex]\gamma[/itex][itex]\varpi+[/itex]ε[itex]^{}_{t}[/itex]
Yt=B1+B2x2t+B3x3t+...+Bkxkt+ε[itex]^{*}_{t}[/itex]
where
ε[itex]^{*}_{t}[/itex] = εt + [itex]\gamma[/itex][itex]\varpi[/itex]t
Since Var(εt) = [itex]\sigma[/itex][itex]^{2}_{ε}+[/itex][itex]\gamma[/itex][itex]^{}_{t}[/itex]var([itex]\varpi[/itex]t)
I don't understand the variance part. I know that the variance of any epsilon is [itex]\sigma[/itex]2, but why does the γt go outside the variance operator? I know it's a constant so why isn't it γ2?
Yt=B1+B2x2t+B3x3t+...+BkXkt+[itex]\gamma[/itex][itex]\varpi+[/itex]ε[itex]^{}_{t}[/itex]
Yt=B1+B2x2t+B3x3t+...+Bkxkt+ε[itex]^{*}_{t}[/itex]
where
ε[itex]^{*}_{t}[/itex] = εt + [itex]\gamma[/itex][itex]\varpi[/itex]t
Since Var(εt) = [itex]\sigma[/itex][itex]^{2}_{ε}+[/itex][itex]\gamma[/itex][itex]^{}_{t}[/itex]var([itex]\varpi[/itex]t)
I don't understand the variance part. I know that the variance of any epsilon is [itex]\sigma[/itex]2, but why does the γt go outside the variance operator? I know it's a constant so why isn't it γ2?