The Presence of Correlated Error Terms Creates Problems for Inference

question 42

Multiple Choice

The presence of correlated error terms creates problems for inference based on OLS. These can be overcome by

• A)using HAC standard errors.
• B)using heteroskedasticity-robust standard errors.
• C)reordering the observations until the correlation disappears.
• D)using homoskedasticity-only standard errors.

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Definitions:

Alpha

A threshold value used in hypothesis testing that defines the probability of making a Type I error, or rejecting a true null hypothesis.

Critical Value

A threshold in statistical testing that defines the boundary for rejecting the null hypothesis.

Hypotheses

A formulated assumption made based on limited evidence as a starting point for further investigation.

Alpha

In statistics, it often refers to the level of significance at which a hypothesis test is conducted; commonly set at 0.05.