Consider the data found in the file, "gas10." You are interested in the effect that a gas tax has on petroleum consumption. The data is cross-sectional and the variables are as follows:
PCON = petroleum consumption (millions of BTU's)
REG = motor vehicle registrations
POP = population
TAX = gas tax (cents per gallon)
a) Run an appropriate regression to test the relationship between the gas tax and petroleum consumption.
b) Using REG as your proportionality factor, conduct appropriate tests to determine whether there is heteroskedasticity among the error terms of your equation. Describe what you have done, and interpret your results. If there is heteroskedasticity, how does it affect your regression results?
c) Using REG as your proportionality factor, rerun your regression applying weighted least squares. Interpret your results.
...+ b POP + c TAX + e e is error term
I don't know what kind of econometric software you use, I use SHAZAM and SPSS.
The OLS regression is very easy.
Still, PCON = a + b POP + c TAX + e with weight = REG
We can use a White Test to test heteroskedasticity:
Run OLS to ...