Re: [Gretl-users] HOW TO CORRECT FOR HETEROSCEDASTICITY WHEN DEALING WITH NON POSITIVE NUMBERS IN EVIEWS

heteroskedasticity in gretl -- namely, switching to "robust" standard errors, or switching from OLS to GLS via the "hsk" command -- do not require taking logs of negative numbers. The following script illustrates. The series y and x contain both positive and negative values, and the data-generating process is heteroskedastic by construction. <hansl> nulldata 50 set seed 3711 series x = normal() # generate heteroskedastic y series y = -1 + 3*x + normal()*x # verify we have negative values in both y and x print y x --byobs # run OLS ols y 0 x # try robust standard errors: no problem ols y 0 x --robust # try GLS: again, no problem hsk y 0 x </hansl> In this case the "hsk" command produces a closer approximation to the true x-slope of 3.0 (2.997, versus 3.098 from OLS), although obviously one would have to replicate the example a large number of times to verify that (as theory says) the hsk estimates are more efficient, given heteroskedasticity.

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